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Covid-19 Diligence Briefing

Our briefing for Friday April 30, 2021:

  • In the United States, one day after New York City announced their plans to fully reopen by July 1st, the Centers for Disease Control and Prevention (CDC) have cautiously seconded that plan, stating it’s a “reasonable target” given falling cases and rising vaccination rates. “We are focused on getting people vaccinated, decreasing the case rates,” CDC Director Dr. Rochelle Walensky said in a COVID-19 press briefing. “If we can continue at this pace, case rates are coming down, vaccinations going up, then I think July one would be a reasonable target.” The White House is likely to announce a vaccine milestone on Friday: 100 million adult Americans fully vaccinated.

  • Statistics Canada released their latest data on Friday announcing the economy expanded at a 6.5% pace in the first three months of 2021. The data puts Canada on track for healthy growth for the quarter as a whole and was on pace with the United States’ 6.4% growth announced on Thursday. The numbers caught some economists by surprise. “So, even with much more forceful restrictions, a slower vaccine roll-out, and without the help of the two mega U.S. stimulus packages at the start of the year, somehow the Canadian economy matched the U.S. step for step through the winter months. That is impressive,” said Bank of Montreal economist Doug Porter. 

  • In the United Kingdom, The Guardian is reporting the government is reducing funding to vital coronavirus research, including a project, tracking variants in India as much as 70%. UK academics were noting the cuts were removing funding from the existing projects that were helping to support sequencing in other parts of the world. A COVID-19 surveillance project in Brazil, which was tracking variants in that country was also affected by the cuts. The Guardian stated a report from the all-parliamentary group on COVID will call for a reversal of coronavirus-related aid cuts on Monday.

  • In France, President Emmanuel Macron outlined the phasing out of coronavirus restrictions for the country on Thursday. Similar to the UK, France will have four phases of their reopening with the first starting on May 3rd and the final phase, if all goes well, on June 30th. Some of the phases though will come with conditions. For instance, the reopening of borders to foreign tourists starting June 9th will only be possible with a health pass attesting that the holder has either been vaccinated, has recently tested negative for the virus, or has recently recovered from it. France has been under its third national lockdown since April 3rd with current restrictions including a 7 pm nighttime curfew, a ban on travelling further than 10 KM (6 miles approximately) away from home, and the closure of all non-essential businesses.

  • The government of Japan is busy doing some damage control after the European Union (EU) confirmed earlier in the week that the bloc approved the export of more than 50 million COVID-19 vaccines to the country; the most among nations the EU is shipping to. Japan’s vaccination rollout has been slow, and its citizens are growing frustrated, especially after government officials have cited supply bottlenecks as one of the reasons for the slow rollout. Being number one on the EU’s export list would seem to directly contradict this notion. Therefore, Vaccines Minister Taro Kono took to social media tweeting that the numbers the EU provided were wrong. There had only been 28 million Pfizer doses shipped from the EU, while Chief Cabinet Secretariat Katsunobu Kato said Moderna vaccines were included in the shipment, which hasn’t been approved for domestic use – but failed to give details on how many doses of Moderna were received.

  • The Australian government is considering on taking the extraordinary measure of making it a criminal offense for Australians who return home from COVID-19 hotspots overseas. Prime Minister Scott Morrison’s government is contemplating the move after media reported two Australian cricketers circumvented the direct flight ban from India, by flying from India to Qatar, and then flying home. Biosecurity regulations, invoked during the pandemic, have already given government authorities sweeping powers. For instance, as of right now, authorities can require an individual to provide contact details, regularly update an officer on their health status and restrict movement by remaining at an individual’s place of residence for a specified period, just to name a few.

Covid-19 – Due Diligence And Asset Management

Lazard CEO says He’s Looking to Hire New Hedge Fund Teams

Brief : Lazard Ltd. Chief Executive Officer Ken Jacobs is looking to take advantage of disruptions in the market by acquiring hedge fund teams and long-only investor groups. “We see a lot of opportunity there,” Jacobs said Friday in a telephone interview after his firm reported first-quarter results. The CEO said he sees a chance to gain in the alternatives business “by consolidating some of the smaller teams that are out there.” Lazard’s assets under management jumped 37% in the first quarter from a year earlier, to $265 billion, driven by a rebound in the markets, according to a statement. The firm generates about half its revenue from managing money and the rest from providing financial advice on mergers, acquisitions and restructurings. Jacobs said Lazard has been adding at least one investment group each quarter, while also actively hiring more M&A dealmakers at the senior level. Dealmaking is also rebounding, he said. As for large acquisitions in asset management, “we really like our position in our business today,” he said. “I’d never say never to anything, we’re inherently, at our core, dealmakers.” Lazard gained 9.8% this year through Thursday, compared with a 12% rise in the S&P 500.

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Europe’s Economy Shrinks in First Quarter as US Rolls Ahead

Brief: Europe's economy shrank 0.6% in the first three months of the year as slow vaccine rollouts and extended lockdowns delayed a hoped-for recovery - and underlined how the region is lagging other major economies in rebounding from the coronavirus pandemic. The fall in output for the 19 countries that use the euro currency was smaller than the 1% contraction expected by economists but still far short of the rebound underway in the United States and China, two other pillars of the global economy. Figures announced Thursday showed the U.S. economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualized basis, the U.S. grew 6.4%. In Europe, it was the second straight quarter of falling output, meaning the region fell back into a recession despite a rebound in growth from July to September of last year. The latest data covers the quarter that ended March 31 and economists say the economy is on the verge of an upswing. France showed unexpected growth of 0.4% compared to the quarter before, while the main negative surprise came in Germany, the continent's largest economy.

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Strong Economy Amid Pandemic Masked by 1-Point Hike in Funding

Brief: Despite a 71-basis-point drop in the average discount rate contributing to a 7.7% rise in aggregate liabilities, Pensions & Investments' annual analysis of SEC filings showed a 1-percentage-point increase in the average funding ratio of the 100 largest U.S. corporate defined benefit plans in 2020. "If you didn't know what happened in between, you wouldn't have seen too much change year-over-year from 2019 to 2020, with funded status ending right around where it started. But a lot did happen," said Tom Meyers, executive director and head of Americas client solutions at Aviva InvestorsAmericas LLC in Chicago. As of March 31, 2020, Wilshire Consulting estimated the aggregate funding level of S&P 500 company-sponsored pension plans at 79.2%, a 9.4-percentage-point decrease from the end of 2019. However, the aggregate funding ratio of P&I's universe was 88.4% as of Dec. 31, which Mr. Meyers said "reflects the magnitude of the capital markets recovery." The average funding ratio of the 100 largest plans was 92%, up from 91% the year before. As plans recovered from the drop in funded status and the market dislocations that followed the onset of the pandemic last spring, Mr. Meyers said well-positioned plans made opportunistic moves, such as selling Treasuries to increase corporate bond exposures at higher spreads and investing in alternative asset classes like commercial real estate, private credit or high yield that were under pressure during the crisis.

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Fueling Endless Rally is Raft of Real-Time Reopening Data

Brief: Amusement parks tickets. Business-class plane reservations. Drive-thru traffic at McDonald’s. Now more than ever, investors are leaning on real-time data to buttress their bullishness on the U.S. stock market. They’re sifting through an ever-widening array of snapshots at a time when some government figures are being distorted by year-ago comparisons to an economy hobbled by a recession. Of course, no one needs esoteric datasets to see that the U.S. -- once the epicenter of the pandemic -- is on the mend, notes Paul Hickey, co-founder of Bespoke Investment Group. Deaths are down, vaccinations are up and consumers are spending again. But with the snap-back recovery in the books and stocks perched at the highest valuations in two decades, the hunt is on for indicators to fine-tune the bull case -- or uncover an early warning signal to get out before being blindsided by a crash. The following is a rundown of what market pros say they’re watching.

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ASIC Review Finds Retail Managed Funds Responded Well to COVID-19 Challenges in 2020

Brief: An ASIC review of a targeted selection of retail managed funds found that they did not face serious investor liquidity challenges during the height of COVID-19 market disruption, and that their liquidity frameworks were generally adequate. While there was a significant drop in net investor cashflow in the first half of 2020, responsible entities of these funds did not tighten members’ ability to withdraw their investments. ASIC conducted the review between June and November 2020 to identify any potential liquidity issues faced by managed funds and respond to those if necessary. The review covered 14 registered funds across three different strategies (four mortgage, five direct property and five fixed income funds) with an aggregate of $1.7 billion in assets under management and approximately 8,500 investors. ASIC selected funds that it considered were at risk of facing liquidity issues due to a mismatch between investors’ expectations or potential desire to exit and the liquidity of the fund assets in a financially stressed market.

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US Equity and IPO Capital Markets Raise Record-Breaking USD125bn from 389 IPOs in Q1 2021

Brief: IPO activity in the US had the strongest first quarter in the year 2021, continuing the strong momentum seen in the second half of the year. According to the research data analysed and published by Finaria, 389 US-based IPOs raised a total of USD125 billion in Q1 2021, up from the 33 issuances that raised USD10 billion in Q1 2020. From this total, there were 298 SPAC deals raising a collective USD87 billion. That was higher than the amount raised in the whole of 2020. On the global landscape, proceeds from traditional IPOs set a five-year record. Based on a report by KPMG, 458 issuances raised USD96 billion in the period which ended on 24 March, 2021. That was up from 252 deals that raised USD30 billion in Q1 2020. US, Hong Kong and A-Share Markets Lead with USD61.4 Billion from Traditional IPOs, 63 per cent of Global Total In the US, the total number of SPACs in Q1 2021 was thrice the figure posted in Q3 2020, which was when the trend became popular. In Q1 2021, there were only 91 traditional IPOs in the country, raising USD38 billion. For the 24 SPACs that completed mergers during the quarter, there was a 27 per cent return. Traditional IPOs, on the other hand, had a 15 per cent return while key indices, S&P 500 and NASDAQ gained 6 per cent and 3 per cent, respectively.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 29, 2021:

  • In the United States, the Big Apple is getting set for a big reopening with New York City Mayor Bill de Blasio targeting a July 1st “full reopening” just ahead of the July 4th long weekend. “We are ready for stores to open, for businesses to open, offices, theaters, full strength,” said de Blasio on Thursday. Wall Street should be back up and running by then too with JP Morgan CEO Jamie Dimon making the news earlier in the week that they will require their employees to return to the office by July. When asked if federal or state leaders could have a say in the reopening (Governor Andrew Cuomo has butted heads with the mayor of NYC in the past), de Blasio said federal and state governments “always have a say”. 
  • In Canada, Ontario was busy making news again on the COVID-19 front issuing their own, albeit temporary, paid sick leave and promising to expand vaccine eligibility to all adults by the end of May. The Doug Ford led-provincial Conservative government announced on Wednesday they would provide three paid sick days through a temporary program that would end in September. Critics were quick to point out three days would not cut it, but after a year of essential workers pleading for paid sick days, at this point three days is better than zero days. Elsewhere in the country, Conservative Leader Erin O’Toole said during a Thursday news conference the federal government needs to find more vaccines so that every adult in the country can get a COVID-19 vaccine dose by Victoria Day, which is May 24th. 
  • The United Kingdom government is being urged to adopt the furlough-style benefits system even after the pandemic is over. The Resolution Foundation, an independent British think tank, said the government should introduce a form of earnings insurance, where unemployment support is paid at 80% of previous pay for three months. Adopting the measure would cost £3.25 billion a year if the jobless rate was similar to the level in 2009 after the financial crisis and less than £1 billion if it were near 2019 levels. According to the Institute for Fiscal Studies, the UK welfare system is one of the least generous in the developed world. 
  • In Germany, officials are hoping a COVID-19 third wave has crested and that a record number of vaccinations should help turn the tide. Germany’s seven-day average of coronavirus cases per 100,000 people fell on Thursday for the third consecutive day to 155 – its lowest in two weeks. The country also vaccinated 1.1 million people on Wednesday – the most of any day so far. The justice ministry has proposed exempting people who have been fully vaccinated or recovered from COVID-19 from stricter limits that the federal government were granted last week through new legislation. According to a Reuters report, the cabinet is expected to discuss those plans next week. 
  • Philippines President Rodrigo Duterte said on Wednesday that the strict travel and public health restrictions will remain in Metro Manila and surrounding areas until mid-May. The restrictions have been in place since mid-April and have limited travel in-and-out of the capital, along with shutting down many non-essential businesses. President Duterte apologized for the extension of the lockdown, scolded people for violating health protocols, but ultimately said the government is to blame for the current situation the Philippines is in right now.
  • In India, the national health ministry says it has more than 12 million COVID-19 vaccines waiting to go, countering media reports of vaccine shortages in multiple cities and districts across the country. On Thursday, the Delhi health minister told local reporters that the national capital didn’t have any vaccines left and had issued a request for more. According to the national health ministry, Delhi had received 3.8 million vaccines to date and had 500,000 doses in storage. Maharashtra state has also issued an appeal for more vaccines after media reported Mumbai – the country’s financial hub – had announced the suspension of COVID-19 vaccinations for three days due to shortages.

Covid-19 – Due Diligence And Asset Management

US Recovery from Pandemic Recession is Showing Momentum

Brief : Powered by consumers and fueled by government aid, the U.S. economy is achieving a remarkably fast recovery from the recession that ripped through the nation last year on the heels of the coronavirus and cost tens of millions of Americans their jobs and businesses. The economy grew last quarter at a vigorous 6.4% annual rate, the government said Thursday, and expectations are that the current quarter will be even better. The number of people seeking unemployment aid — a rough reflection of layoffs — last week reached its lowest point since the pandemic struck. And the National Association of Realtors said Thursday that more Americans signed contracts to buy homes in March, reflecting a strong housing market as summer approaches. Economists say that widespread vaccinations and declining viral cases, the reopening of more businesses, a huge infusion of federal aid and healthy job gains should help sustain steady growth. For 2021 as a whole, they expect the economy to expand around 7%, which would mark the fastest calendar-year growth since 1984.

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100 Days of Biden: Investors Weigh Impact on US Economy, Markets and Climate

Brief: As Joe Biden’s presidency passes the 100-day mark, fund managers are considering what impact his inaugural period in office will have on financial markets. A mammoth USD1.9 trillion Covid-19 relief package has already passed through Congress, and further stimulus is expected amid plans to overhaul US infrastructure and update the energy system in line with the administration’s climate goals.  It is clear that Biden’s administration is taking a very different direction compared to the Trump government it replaced in January. Biden has called for a series of “once-in-a-generation investments in our nation’s future”, and planned spending so far amounts to USD6 trillion.  This includes the American Families Plan, announced to Congress on Wednesday, which sets out major spending and tax cuts for workers, families and children planned for the next 10 years.  Investment managers have given their views on the market impact of the increased Covid fiscal stimulus and infrastructure spend, as well as the trends they see arising over the coming years as a result of the new direction of the US. Matt Benkendorf, CIO of Vontobel Quality Growth, believes that markets could see more volatility later in the year, as inflationary spending plans take their course.

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PE Firms Make GBP10.1 Billion Carve-Out Deals as Pandemic sees Corporates Shed Business Units

Brief: PE firms made GBP10.1 billion of corporate carve-out acquisitions in the UK last year, up from just GBP765 million in 2019 as the Covid-19 pandemic drove more corporates to sell non-core business units, says Mayer Brown, the global law firm.  Mayer Brown says that the economic disruption of the past year has forced many large businesses to focus on their core operations to a much greater extent, leaving them much more open to sales of less strategically-important business units.  Private equity funds with significant capital to deploy have been a major beneficiary of corporates’ increased interest in divestments and have frequently been bidders in these auctions. This includes large US PE houses, who were involved in all four of the UK corporate carve-out deals worth more than GBP1 billion concluded by PE buyers in 2020…

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T. Rowe Price Plans to Bring Staff Back to Offices in September

Brief: T. Rowe Price Group Inc. Chief Executive Officer Bill Stromberg said the firm plans to bring its U.S. workers back to the office by Sept. 13 after more than a year of remote work. The money manager will allow employees in North America to return on a voluntary basis until that date, with social distancing measures in place, Stromberg said in an interview Thursday after the Baltimore-based company posted first-quarter results. “We’re coming back with a commitment to additional workplace flexibility, more than we’ve had in the past,” Stromberg said. “Some jobs really do function better in the office than others, and some can be more independent than others,” he added. “We’re in the process of working that out, job-by-job, right now.” Financial firms are stepping up efforts to bring workers back as Covid-19 vaccines become more broadly available and in-person schooling resumes. Many companies are deciding whether to bring everyone back full time or embrace more flexible schedules that would allow staff to work remotely for part of each week.

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Manulife CEO Embraces Flexible Schedules, Slow Return to Office

Brief: Manulife Financial Corp. Chief Executive Officer Roy Gori isn’t in a hurry to bring the insurer’s employees back to the office, and when he does, they’ll still have plenty of flexibility to work from home. The company hasn’t set a date to bring workers back, and it will continue to allow them to perform some portion of their jobs from home, Gori said. While the office is important for creativity and innovation, Manulife has managed to keep employees engaged and productive while working from home thanks to investments in technology and an emphasis on meeting workers’ needs, Gori said. “We’re not in a huge hurry to get people back,” Gori said in an interview Wednesday. “The current environment of having people work remotely is working incredibly effectively for us.” Financial firms’ plans to return workers to the office have been varied. JPMorgan Chase & Co. became the first major U.S. bank to mandate a return to offices for its whole U.S. workforce, telling staffers in a memo Tuesday that they’ll need to come back in about two months on a “consistent rotational schedule.” Citigroup Inc. plans to bring more workers back in July while Wells Fargo & Co. is seeking a more normal environment in September.

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Australia’s Wealth Fund Swells to Record A$179 Billion

Brief: Australia’s sovereign wealth fund grew to reach a record A$179 billion ($140 billion) as it notched up another quarter of solid returns. The Future Fund returned 4.5% in the three months to March 31, and posted the best yearly performance to March since 2017, it said in a statement Thursday. Global equities hit fresh records during the quarter as economies continued to rebound from the pandemic shock of 2020. “All funds have beaten their target returns across all timeframes,” Chairman Peter Costello said in the statement. “Markets have continued their recovery, driven by the deployment of vaccines, quantitative easing and fiscal stimulus around the world.” The Future Fund is keeping almost 19% of its portfolio in cash and maintained its equities holdings flat at about one-third of the fund last quarter. Total equity allocation is about 1.6 percentage points below the same time last year as Costello echoed Norway’s sovereign wealth fund in expecting more market volatility. “With interest rates at historically low levels, markets are very sensitive to any prospect of inflation and rising rates as a consequence,” he said. “The Board recognizes that the investment challenge ahead is significant and is continuing to assess and position the portfolio to generate mandated long-term returns while managing risk.”

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday April 28, 2021:

  • In the United States, CNN is reporting there is growing internal debate among Biden administration officials over COVID-19 vaccine sharing with other countries. World leaders have asked the White House administration to share excess vaccines and other emergency COVID-19 assistance for months. According to CNN, those on the side of sharing excess vaccines as quickly as possible have grown frustrated and are encouraging business groups and interest groups outside of the government to publicly push the administration. The White House coronavirus response coordinator’s team has taken the lead on this decision making and lean towards making sure first and foremost the United States need to be confident vaccine efforts are domestically taken care of.

  • In Canada, the province of Nova Scotia is taking no chances, moving the entire region into a two-week snap lockdown. The restrictions are to be in place until May 12th, calling for strict rules around gathering (almost none outside of the immediate household), sweeping closures to non-essential businesses and a shift to remote learning for schools. Nova Scotia made the move after reporting 96 new cases on Tuesday – a new single day record. The caseload dropped slightly on Wednesday to 75. Elsewhere in the country, the Ontario government has issued a new emergency order that will allow the transfer of patients waiting for a long-term care bed to any nursing home without their consent in an effort to free up space for COVID-19 patients in need of urgent care. Health Minister Christine Elliott said the transfers without consent will only be completed in the most urgent of situations.

  • The United Kingdom has purchased another 60 million doses of the Pfizer/BioNTech vaccine to support its booster program for the fall. “Our vaccination program is bringing back our freedom, but the biggest risk to that progress is the risk posed by the new variant,” Health Secretary Matt Hancock said in a statement. “We’re working on our plans for booster shots, which are the best way to keep us safe and free while we get this disease under control across the whole world.” Staying on the topic of vaccines, Hancock said the UK does not currently have any excess doses of COVID-19 vaccine to send to pandemic-stricken India.

  • France Prime Minister Jean Castex said on Wednesday that President Emmanuel Macron will outline how coronavirus restrictions will be progressively relaxed later in the week. President Macron will speak to the nation on Friday to give more details, but French media is reporting the government will replace the current state of emergency as of June 2nd with a “transition regime” that will run until October 31st. The “transition regime” will allow the government to react swiftly if health conditions were to deteriorate as France exits its lockdown. France is the European Union’s second largest economy and is currently in its third national lockdown since the pandemic began.

  • Bloomberg is reporting with India being crippled by the latest wave of the pandemic, China is stepping into fill the vaccine void with neighbouring nations. China’s Foreign Minister Wang Yi met with his counterparts from Afghanistan, Bangladesh, Nepal, Pakistan and Sri Lanka in a virtual meeting on Tuesday and said Beijing is willing to provide stable vaccine supplies through a multilateral framework. China has been trying hard to establish itself on the worldwide stage through vaccine diplomacy. India, home to the world’s largest vaccine industry, has had to pause export efforts to help its own people through their recent struggles.

  • In a joint statement with the International Olympic Committee (IOC), the government of Japan agreed on measures to ensure the safe organization of the Olympic Games, which are scheduled to begin in just under three months. The measures include all participants required to take two COVID-19 tests before their flight to Japan. Once in Japan, all athletes and those close to the athletes will be tested daily, and will have an activity plan that must be followed which includes minimizing contact within one metre of Japanese citizens. The timing of this “playbook” comes as Tokyo, Osaka and several prefectures are under a third state of emergency this week.

Covid-19 – Due Diligence And Asset Management

Fed Upgrades View of Economy While Keeping Rates Near Zero

Brief : Discover what’s driving the global economy and what it means for policy makers, businesses, investors and you with The New Economy Daily. Sign up here Federal Reserve officials strengthened their assessment of the economy on Wednesday and signaled that risks have diminished while leaving their key interest rate near zero and maintaining a $120 billion monthly pace of asset purchases. “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Federal Open Market Committee said in a statement following the conclusion of its two-day policy meeting. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” Marking a clear improvement since the pandemic took hold more than a year ago, the Fed said that “risks to the economic outlook remain,” softening previous language that referred to the virus posing “considerable risks.” The statement also noted that sectors hit hardest by the Covid-19 pandemic had “shown improvement.”

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China Private Equity Deals Surged in 2020 as Country Emerged from COVID-19 Crisis, Bain Survey Finds

Brief: China's private equity investors benefited from the country's swift action to contain the Covid-19 pandemic, enjoying a jump in investment value and deal numbers last year, according to global consultancy Bain & Co. But the fund managers face an uphill battle to conclude more lucrative deals this year amid escalating competition. "Higher selling prices of targeted firms are expected this year," said Lucia Li, a partner with Bain said. "High-growth companies are actively chased by many funds, hence they are raising their valuations and prices." Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team. In 2020, private equity funds in China sealed deals worth US$97 billion, up 40 per cent from a year earlier, Bain's survey found. The total number of transactions climbed 53 per cent to 857. Companies in the technology, media, telecoms and health care sectors with both solid earnings and high growth potential were the primary targets of the cash-rich investors.

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Airport Muni Bonds Rally with Vaccine Heralding Travel Rebound

Brief: Bonds backed by America’s airports are rallying back as the Covid vaccine rollout promises to revive the travel industry, marking a rebound for one of the corners of the municipal-debt market hardest hit by the pandemic. The rally has driven the yields on debt backed by airports down to about 1.2%, or about 30 basis points more than the market’s benchmark, according to an ICE Bank of America index tracking the sector. That marks a dramatic shift from early in the pandemic, when speculation about the deep financial toll of the nation’s shutdowns drove the index’s yield to more than 4% as investors dumped the securities in droves. The move eliminates what had been some of the rare bargains in the municipal securities market as valuations on top-rated bonds hover near record highs. Junk bonds have climbed, too, pushing the yields back toward the more than two-decade low hit before Covid-19 raced through the U.S. “During the pandemic, airlines and anything associated got absolutely crushed in terms of spread -- and they stayed wider for a longer period of time than some of the other sectors that were affected,” said Jason Appleson, a portfolio manager at PT Asset Management in Chicago. “In terms of buying opportunity, I’m not sure there is a lot left.”

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Battered U.S. Office Perks Up with Workers Trickling Back

Brief: After a number of false starts over the past year, corporate America is finally bringing workers back to the office. The widening availability of vaccines means that employers are setting plans for returns. Exxon Mobil Corp. said on Tuesday that its Houston-area workers would be back full-time in May. JPMorgan Chase & Co., meanwhile, is opening its U.S. offices next month, with its full staff expected back in July on a rotating basis. Already, offices are slowly starting to fill up across the country as social distancing-rules ease and vaccines accelerate, bringing optimism that more Americans will soon be able to resume their pre-pandemic daily life. About 26% of office workers in major cities were back at their desks as of April 21, the highest share in about five months, data from security company Kastle Systems show. Companies that postponed searches for space last year are back in market, looking to take advantage of cheaper rents and concessions from landlords eager to fill vacancies. National demand for offices jumped 28% in March from the prior month and is now just 9% below pre-pandemic levels, according to property-data firm VTS, which tracks office tours. “People are feeling really good about where we are in the world from the economy and getting Covid under control,” said Ryan Masiello, chief strategy officer at VTS. “That’s a big part of what’s driving people back into the market.”

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The Billionaire Who Pioneered Remote Work Has a New Plan to Turn His Workers into Algorithms

Brief: In March, the billionaire founder of Austin, Texas’ ESW Capital, Joe Liemandt, fired off a directive to managers of his army of 2,500 remote workers. The email’s subject line read: “White Collar Specialization- Worksmart Work Unit.” With the world embracing remote work as the new normal, Liemandt ordered his managers to design work units, specialized tasks that workers—mostly software engineers— could perform efficiently over and over, as if they were assembly line workers in an old-fashioned auto factory. “Most jobs are poorly thought out and poorly designed—a mishmash of skills and activities . . . poor job designs are also quickly exposed with a move to remote work,” Liemandt wrote.  The solution, Liemandt argued in his email, was for managers to observe remote workers and identify repeatable work patterns in order to create these work units. The idea was for managers to fragment white-collar work into small-scale tasks—the writing of specific code by a software engineer, a customer support agent solving a specific technical problem, or a targeted document analysis. Liemandt wanted his managers to create these units—lots of them.

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The Pandemic Didn’t Touch Private Equity Paychecks

Brief: Amid the market volatility and economic uncertainty of the pandemic, compensation for professionals in private equity and venture capital continued to rise. In Benchmark Compensation’s annual survey of industry professionals, 68 percent of respondents said they earned between $150,000 and $1 million last year, marking the highest percentage to report earning more than $150,000 since the company began publishing the annual report 14 years ago, the firm said in a press release Tuesday. The 2021 report also marks the seventh consecutive year of gains in private equity and venture capital compensation. Overall, the study found that respondents working in private equity earned more money than those working in venture capital, but respondents working in hybrid firms earned the highest levels of compensation as vice presidents and managing directors. The report was based on a survey of hundreds of workers, from partners to junior advisors, from October to November 2020. Participating firms included Goldman Sachs, KKR, Bain Capital, and BlackRock. “Overall, compensation is up, but more than half of those surveyed are dissatisfied with their pay,” David Kochanek, the publisher of the study, said in a statement. According to Benchmark Compensation, employees cited market conditions and employee expectations as the reasons why they were dissatisfied.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday April 27, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) have issued new guidance on outdoor mask use for fully vaccinated Americans on Tuesday. In their briefing, CDC Director Dr. Rochelle Walensky said fully vaccinated people can unmask outdoors, if they are walking, running, hiking, or biking alone or with members of their household. Fully vaccinated Americans can also go mask free while dining at an outdoor restaurant with friends from multiple households. However, Dr. Walensky cautioned those fully vaccinated that plan to attend medium sized, or large events like a live performance or sporting event should still wear a mask.
  • Canadian Prime Minister Justin Trudeau said the country will send $10 million through the Canadian Red Cross to the Indian Red Cross to help the country’s stretched health-care system through its deadliest wave of COVID-19. Prime Minister Trudeau said the money will go to fund ambulance services and the local purchasing of personal protective equipment. Relevant ministers are also in touch with their Indian counterparts about what more Canada can do to help. Elsewhere in the country, CBC is reporting the federal government has rejected a request by the Ontario provincial government to double the federal paid sick leave program to $1,000 a week with Ontario chipping in for the cost. Prime Minister Trudeau said during a Tuesday news briefing that Finance Minister Chrystia Freeland is working closely with the province to develop its own supports.
  • In the United Kingdom, the latest data shows close to 34 million have received at least their first inoculation of a COVID-19 vaccine. The latest numbers mean the vaccine rollout has already reached over half of the UK population with a first dose and a quarter of adults are now fully vaccinated with both shots. Health Minister Matt Hancock sent out a message via his social media announcing the next stage of the vaccination program with vaccines now being offered to those 42 years of age, or older and that all adults who want a COVID-19 vaccine can have one by the end of July.
  • The two largest European Union (EU) countries outlined their plans on pandemic recovery spending on Tuesday. Germany and France plan to use the EU’s pandemic recovery fund for fighting climate change and boosting the use of digital technology across the economy. Under the fund’s formula, France will receive €40 billion while Germany will receive €28 billion. France’s Finance Minister, Bruno Le Maire has called on the European Commission, the EU’s executive branch, to quickly evaluate the plans so that money can start flowing to member states as early as July. Le Maire said since the fund was approved, the bloc has lost too much time to large economies like the United States and China recovering faster and Europe must remain in the race.
  • The Associated Press is reporting coronavirus infections have surged past one million in the Philippines, which is causing officials to assess whether to extend a monthlong lockdown in the Manila region. The government is in a no-win situation as the reopening will undoubtably lead to a spike in cases but keeping it in place will continue to batter the economy while making their citizens suffer through joblessness and hunger. The Philippine Red Cross said surging infections have placed hospitals “under siege” and that it has set up field hospital tents and converted unused classrooms and buildings to quarantine patients. 
  • In Australia, the snap three-day lockdown in Perth and surrounding regions did its job with the lockdown ending as no new COVID-19 community cases were recorded. Premier Mark McGowan said that while people were free to leave their homes and return to work and schools, some interim restrictions would be in place for the remainder of the week, such as mandatory wearing of face masks in public. Elsewhere in the country, Prime Minister Scott Morrison has followed suit like many other countries throughout the world and has suspended all direct passenger flights from India until May 15th. The move will leave many Australians stuck or needing to find their own way out of India for the time being with Prime Minister Morrison saying no one will be prioritized, such as high-profile cricket players who play abroad in a professional league.

Covid-19 – Due Diligence And Asset Management

It’s Time to Return to the Office, Jamie Dimon Signals to Wall Street

Brief : Jamie Dimon is sending a message to his fellow Wall Street chiefs: It’s time to bring employees back to the office. JPMorgan Chase & Co. became the first major U.S. bank to mandate a return to offices for its entire U.S. workforce, with staffers being told they’ll need to come back in about two months. The lender’s top decision-making body, led by Chief Executive Officer Dimon, said in a memo to staff Tuesday that it “would fully expect that by early July, all U.S.-based employees will be in the office on a consistent rotational schedule.” Industry leaders have been preparing for an end to remote work since the earliest months of the pandemic last year. Dimon, who’s been going into the bank’s headquarters since June, said as far back as September that he expects economic and social damage to result from a longer stretch of working from home. David Solomon, Dimon’s counterpart at Goldman Sachs Group Inc., called the remote-working arrangement an “aberration” that needs to be corrected as quickly as possible. “This is fantastic news and the fact that it’s JPMorgan and Jamie Dimon — this will send a very positive message to other CEOs, not just in New York but around the country, to start making plans to on-board their employees,” Bill Rudin, chief executive officer of Manhattan office landlord Rudin Management Co., said in a phone interview.

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HSBC to Cut Office Space by 20% in 2021, Halves Business Travel

Brief: HSBC Holdings Plc expects to cut its office footprint by 20 per cent this year and is budgeting for half its previous business travel costs as the adoption of flexible working spurs changes to longstanding practices. The bank, which has already committed to a 40 per cent reduction in office space in the long term, expects to get halfway to its goal over the course of this year, Chief Financial Officer Ewen Stevenson said in an interview with Bloomberg Television Tuesday. “We do very much want to move to a hybrid working environment,” he said. HSBC’s pace highlights how quickly the pandemic has redrawn the office market as businesses debate the type and extent of space required for their newly-remote workforces. Vacancies have soared in financial centers such as London, and even Chief Executive Officer Noel Quinn and his senior team at HSBC are hot-desking to help reduce the bank’s footprint at its Canary Wharf headquarters. “Firms have told us that they remain committed to retaining a central London hub but how they operate will inevitably change to reflect post-pandemic trends, such as hybrid and flexible working,” Catherine McGuinness, chair of the policy and resources committee at the City of London Corporation, said in a statement Tuesday.

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Why the S&P 500 is Still Treading Water Despite Strong Company Results

Brief: By almost any measure, this has been an astonishing earnings season for US corporates. At the time of writing, around two-thirds of companies had beaten expectations – and not just by a little. Barclays analysts put average earnings per share growth at an impressive 63%. However, it doesn’t appear to be having much impact on share prices. Why? Tesla is a case in point: its earnings rose to 93 cents per share, against expectations of 79 cents with revenue up 79% year on year. Its share price dropped 3% in the immediate aftermath of the results. Overall, the S&P 500 has been treading water even as results have come through strongly. The strong macroeconomic picture is also not providing the support it should. The US economy is flying. Retail sales registered almost 10% growth year on year in March. The IMF is predicting GDP growth of 6.4% for 2021. Manufacturing is seeing huge expansion and jobs growth is buoyant. Steven Bell, chief economist at BMO Global Asset Management, says there is more to come. “The excellent vaccine rollout plan is unleashing a surge in spending as consumers emerge with bank accounts bursting with cash from a whole series of fiscal handouts,” he says.

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US Consumer Confidence Returns to Pre-Pandemic Levels

Brief: Consumer confidence rose sharply for a second straight month, hitting the highest level since the pandemic began, as the rapid rollout of vaccines and another round of U.S. financial support for Americans boosts optimism. The Conference Board reported Tuesday that its consumer confidence index advanced to a better-than-expected 121.7 in April, up from 109.0 in March. It was the strongest reading since the index stood at 132.6 in February 2020, right before the COVID-19 pandemic struck in the United States. The present situation index, based on consumers assessment of current business and labour market conditions sored from 110.1 to 139.5. The expectations index, based consumers' views of what conditions will be like over the next six months, posted a more moderate gain, rising from 108.3 last month to 109.8 in April. Economists believe that the rising consumer confidence will bolster overall economic growth as consumers, who account for 70% of economic activity, step up their spending as lockdown restrictions are eased.

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Goldman’s Digital Hedge-Fund Matchmaking Push Boosted by Lockdowns

Brief: Goldman Sachs’ long-planned online migration of some lucrative prime-brokerage businesses picked up steam during the pandemic as hedge funds and investors working from home were unable to meet in person, while other Wall Street banks are taking more measured steps. Last July, Goldman Sachs Group Inc launched Marquee Connect, offering online virtual introduction services for top clients. Other prime brokers told Reuters they were also moving to bring some prime broker services online, but one cautioned that clients may be getting “Zoom fatigue” with hopes to resume meeting in person once more people are vaccinated. Humans have long handled capital introduction services, in which third parties like banks attempt to matchmake investors with hedge funds. But as large swathes of other bank services have moved to virtual platforms, banks have been increasingly looking at how to move some of these services online too.

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Gundlach says Fed is Guessing that Inflation Will be Transitory

Brief: It is not clear that U.S. inflation will be “transitory” as the Federal Reserve economists are trying to convey, according to Jeffrey Gundlach. “I’m not sure why they think they know that it’s transitory,“ Gundlach of DoubleLine Capital LP said in an interview with BNN Bloomberg Tuesday. “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively.” While the Fed does have a point in saying the year-over-year increase -- which Gundlach says could be as high as 4% -- is higher in part because of the low, pandemic-induced numbers from 2020, the central bank may also be underestimating the impact of its wide-open monetary policies. “There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“ Gundlach is chief executive and chief investment officer of Los Angeles-based DoubleLine Capital, which managed more than $136 billion as of Dec. 31. While bond yields remain very low, it’s hard to figure out who’s going to buy the massive bond market issuance, he said.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday April 26, 2021:

  • In the United States, the Associated Press is reporting the country will begin sharing its entire pipeline of vaccines from AstraZeneca once they clear federal safety reviews. The Associated Press said as many as 60 million doses are expected to be available for export in the coming months. The AstraZeneca COVID-19 vaccine has yet to be authorized by the Food and Drug Administration (FDA), but is widely used around the world, such as Canada, Mexico and now India, who are struggling with devastating surges of the coronavirus. The United States have vaccinated more than 53% of its population with at least one of dose of the Pfizer, Moderna and recently reactivated Johnson & Johnson vaccine and it expects to have enough supply for their entire population by early summer.

  • In Canada, Ontario has made a formal request to the Canadian Armed forces to help deal with a surge of critical care cases associated with the third wave of COVID-19. In a statement released Monday, the Doug Ford-led provincial government is asking for health human resources, along with logistical and operational support. The news comes days after the provincial government refused an offer by the federal government to send in extra personnel, via the Canadian Red Cross. Elsewhere in the country, Nova Scotia is now struggling with its worst wave of COVID-19 cases since the pandemic began. Dealing mostly with single digit cases for months, the province set daily records in back-to-back days on Sunday and Monday. Nova Scotia now has 323 active cases, the most since April 29th, 2020.

  • United Kingdom Prime Minister Boris Johnson was busy doing damage control, rebuffing a Daily Mail report on Monday that he would rather see bodies pile high in their thousands before ever agreeing to another lockdown. The comments were allegedly made during an October 2020 meeting at 10 Downing Street, just prior to England’s second national lockdown. Asked by reporters if he had ever made those comments, Prime Minister Johnson, simply said “no” and followed up that governments want to make sure lockdowns work, which they have, and thanked the people of Britain for getting the disease currently under control. 

  • The European Union (EU) has filed a lawsuit against AstraZeneca over vaccine delivery delays. An EU official said the main objective of the legal action is to obtain the contracted number of doses and was filed by the European Commission on its own behalf and on behalf of all 27 EU member states. AstraZeneca delivered just a quarter of the coronavirus vaccine doses that the EU was expecting in the first quarter. AstraZeneca released a statement of their own, saying they fully complied with the advance purchase agreement with the EU and believe any litigation is without merit.

  • India’s mounting coronavirus caseload is showing the difference between the haves and have nots in the country. Wealthy families and even not so wealthy are fleeing the country on private jets. “It’s not only the ultra-rich,” said Rajan Mehra, CEO of New Delhi-based private jet firm Club One Air. “Whoever can afford to take a private jet are taking private jets.” Over the last week, India has consistently set world records for daily case counts – on Monday the country reported 352,991 new infections – another record. The UK, Canada, Hong Kong and the United Arab Emirates are among more than a dozen countries/states that have imposed travel curbs from India, so finding a place to land those private jets might be increasingly difficult.

  • Brazil’s President Jair Bolsonaro has threatened using the army to restore order due to lockdown measures in the country. However, it isn’t for the reason you might be thinking. President Bolsonaro is actually threatening to use the army to open up states/cities that are in lockdown, not the other way around. “That lockdown policy, of quarantine, is absurd. If we have problems – we have a plan of how to act. I am the supreme head of the armed forces,” said Bolsonaro. The president said the army could be summoned to “re-establish Article 5 of the Constitution,” which mentions the right to freedoms of movement and of religion. According to data from the Brazilian health ministry, 195,848 deaths have been recorded due to the coronavirus from January 1st to April 25th, 2021, which exceeds the 194,949 deaths Latin America’s largest country suffered from March through December 31st of last year.

Covid-19 – Due Diligence And Asset Management

How COVID-19 Sank Quant Macro Hedge Fund Pioneer IPM

Brief : Long-running systematic macro hedge fund IPM says the Covid-19 pandemic “aggravated” an already challenging situation for the firm, leading to its decision to shut down the business. Stockholm-based systematic pioneer Informed Portfolio Management announced last week it was ending all investment activities. It said the recent investment environment has proved challenging for systematic macro as a strategy and IPM as a manager, which has suffered “lacklustre performance and significant outflows”. “The investment environment has been difficult in recent years for strategies focusing on economic fundamentals, with the Covid-19 pandemic aggravating the situation,” IPM chairman Lars Ericsson said in a statement. Founded in 1998 by Anders Lindell and Jonas Rinné, who had previously been at Swedish fixed income trading house JP Bank, the firm built considerable momentum in its early years, gaining more than 31 per cent in 2008 during the Global Financial Crisis using computer models to trade government bonds, currencies and equities futures. But the systematic hedge fund’s assets steadily eroded in recent times, from a high of some USD9 billion just a few years back to roughly USD1 billion in 2020.

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U.S. Private Equity Firm Bets on Boom in U.K. Labs

Brief: Harrison Street Real Estate Capital is betting on the growth of the U.K.’s bio-tech industry with a deal to combine the country’s largest science incubator with a portfolio of science parks. The company’s venture with Trinity Investment Management has agreed to acquire BioCity Group, according to a statement. BioCity helps startups through early stage venture capital investment and accelerator programs. Science parks have become one of the hottest real estate niches in the U.K. as international investors look to piggy-back on increased government funding for a sector that has been among the few beneficiaries of the coronavirus pandemic. The country has a shortage of purpose-built space for commercializing scientific research, despite boasting several of the world’s top academic institutions and pharmaceutical companies. The venture will acquire a portfolio of 12 facilities across five U.K. science parks for about 120 million pounds ($167 million), according to the statement. The new business will be called We Are Pioneer Group and will manage a portfolio spanning 2.6 million square feet.

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Why We Need to Reclaim the Finance Industry Like Fans did for Football

Brief: Last week we saw Europe’s rebel soccer league crumble within 72 hours from announcement to demise. One can only imagine what might have happened behind closed doors – frantic phone calls, secret meetings and very tense meetings. Outraged fans took to the streets to protest, players openly expressed their frustration, politicians weighed in and this rogue league made headlines around the world… The pandemic has both highlighted and exacerbated the inequalities that were already present. We have all spent the last year, and some of this year, making enforced sacrifices; some financial, some social. None of us want those sacrifices to have been made in vain. That means a more equitable share both of rewards and prospects for everyone. After the Global Financial Crisis of 2008/9, there was a widespread perception of financial greed and mistrust of the world’s bankers and financiers, none of whom were ever held to account for any misdemeanours, real or imaginary. A decade of austerity left the perception that ordinary citizens were left to suffer the pain and pick up the bill. The reaction to Covid-19 is different.

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Strategists See Opportunity for Rotation Trades Amid U.S. Vaccine Success

Brief: Early signs are emerging that the U.S. stock market rotation into cyclicals and out of big tech still has room to run. The reopening trade has lagged for weeks and it’s been the topic of fierce debate among equity strategists. Last week, smallcaps beat tech for the first time in about a month, and the trade looks sets to continue once again on Monday. Evercore ISI and Fundstrat Global Advisors LLC are urging clients to buy stocks tied to the economic recovery. It’s “time to re-engage cyclicals,” said Dennis DeBusschere, head of portfolio strategy at Evercore, in a note on Sunday. “The rapidly improving labor market is inconsistent with peak GDP fears and suggests the output gap will close quickly, putting upward pressure on inflation, bond yields, and cyclical assets.” The U.S. economy is reaping the rewards of a fast vaccine rollout, with about 42% of the population having had at least one dose. Economists have raised growth estimates, and there’s every sign that life is returning to normal for millions of Americans.

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British Airways CEO says ‘Great Opportunity’ for UK-U.S. Travel

Brief: The chief executive of British Airways said there was a "great opportunity" for Britain and the United States to open a travel corridor given their high vaccination rates, and said he was optimistic for European travel from June onwards. Airlines are readying their planes, pilots and crew for travel this summer, hoping for a bounce back after over a year of pandemic restrictions, although governments have yet to agree the details of how and when the restart will work. British Airways chief executive Sean Doyle, who took the helm of the IAG-owned airline in the middle of the COVID-19 crisis last October, said that travel between Britain and the United States should be restriction-free. "If you look at the progress of vaccinations that the UK and the US have made, they're almost neck and neck," he said, speaking to an online industry conference. I think the U.S. is a great opportunity to get up and running again. Travel between Europe and the United States is also on the cards.

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Value of Private Equity Club Deals Jumps to GBP19.7bn as Investors Look to Target Higher Value Acquisitions

Brief: The total value of UK private equity club deals hit GBP19.7 billion last year, a fourfold increase from the GBP4.5 billion last year, says Pinsent Masons, the multinational law firm. The number of these ‘club deals’ has reached a three-year high (see graph below) – there were 56 deals last year, up 30 per cent from 43 the year before. A ‘club deal’ is when two or more private equity or trade buyers jointly acquire a company. One of the biggest club deals of recent years was the GBP6.8 billion acquisition of ASDA, in October last year by the Issa brothers and TDR Capital.  Alasdair Weir, Partner at Pinsent Masons, says by pooling their fire power, club deals allow groups of investors to buy bigger targets and share risk. In some cases this can reduce the amount of leverage needed, allowing deals to be equity funded more quickly and with more certainty.  The impact of Covid-19 on the economy has caused some lenders to exercise more caution on leveraged buyouts in those sectors most affected by the lockdown. By increasing the equity slice, club deals allow buyers to use lower levels of debt financing.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday April 23, 2021:

  • In the United States, Reuters is reporting giant American landlords are pursuing evictions despite the Centers for Disease Control and Prevention’s (CDC) ban against it. Comprehensive nationwide figures aren’t available, but according to the Princeton University Eviction Lab, more than 318,000 American households have faced eviction proceedings during the pandemic. The research project tracks 27 cities across the United States including Phoenix, Milwaukee and Dallas. Moody’s Analytics estimates by May, an estimated seven million renters will owe $40 billion in back rent, utilities and fees. Before the pandemic, about 900,000 American households were evicted each year.
  • Canada’s Public Health Agency released their latest modeling data on Friday, and it is suggesting the stringent health measures put in place have slowed the rapid spread of COVID-19. During a news briefing, Canada’s Chief Public Health Officer Dr. Theresa Tam noted province wide lockdowns in British Columbia, Ontario and Quebec, albeit only implemented in recent weeks, are already showing results. “For the first time in many weeks, the epidemic has dropped out of a growth pattern. We have reassurance that strengthened measures can slow growth where more contagious variants are circulating, but sustained measures and individual practices are the key to keeping growth down,” said Dr. Tam.
  • The United Kingdom’s emergency pandemic support measures sent the country’s annual borrowing skyrocketing to its highest level not seen since World War II. The latest data released Friday showed public sector net borrowing – the state’s preferred measure of the deficit – ballooned to a record of £303.1 billion in the year to March. The numbers are equivalent to 14.5% of the UK’s GDP – the highest proportion since 1946 when it stood at 15.2%. Prime Minister Boris Johnson’s government has spent £352 billion in emergency COVID-19 measures – most to a furlough scheme that has paid a large share of private sector wages for millions of Britons.
  • After receiving the green light from all levels of government earlier in the week, Germany’s new “emergency brake” rules for areas with high COVID-19 infections rates are expected to start as early as Saturday. Due to the high rate of coronavirus spread in the country, Health Minister Jens Spahn said these new rules would affect almost the entire country. However, it was not all bad news for Germany. Spahn added the country’s vaccination campaign was now gathering pace with one in four Germans now having at least one dose of coronavirus vaccine and the health minister expects to offer inoculations to all adults by June. 
  • Australia’s city of Perth, as well as neighbouring Peel region will enter a snap three-day lockdown from midnight on Friday after two people tested positive for COVID-19. The snap lockdowns are nothing new for Australia as this has been the decision of choice by most state governments for months now as their vaccination program isn’t where they would like it to be. The two cases were the first signs of community transmission in the country in a week. The snap lockdown will close down most public spaces, including pubs, restaurants, places of worship, libraries and cinemas. Several sporting events though were given the green light to go ahead on Friday evening with masks being mandatory.
  • India has endured its worst week since the coronavirus pandemic began. On Friday, the country reported more than 332,000 new cases, setting a world record for the second straight day. Deaths were said to be 2,263 over a 24-hour period, however that number is likely much higher. All of this suffering is causing India’s healthcare system to buckle under the pressure. Dr. Atul Gogia, a consultant at the Sir Ganga Ram hospital in Delhi, told the BBC there had been a “huge surge” in patients leaving no space in the emergency room. “We do not have that many oxygen points. Whatever oxygen points are there, they’re full. Patients are coming in with their oxygen cylinders or without oxygen. We want to help them but there are not enough beds and not enough oxygen points even to supply them oxygen if it is there,” said Dr. Gogia.

Covid-19 – Due Diligence And Asset Management

U.S. Business Output Expands Most on Record, IHS Markit says

Brief : A gauge of output at U.S. manufacturers and service providers reached a record high in April, adding to evidence of stronger demand that’s fueling inflationary pressures. The IHS Markit flash composite index of purchasing managers at manufacturers and service providers increased to 62.2, the highest in data back to 2009, from 59.7 a month earlier, the group reported Friday. Readings above 50 indicate growth. An easing of Covid-19 restrictions and robust sales are driving faster growth in business activity, including a record pace of expansion in orders placed with the nation’s factories, the group’s data showed. However, supply shortages and shipping challenges are complicating manufacturers’ efforts to meet demand while driving up materials costs at the same time. Factories and service providers are having greater success passing along higher input costs. The IHS Markit’s composite gauge of prices received rose to a record in March. “The worsening supply situation is a concern for the outlook, especially in relation to prices,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

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Commentary: Maintaining Corporate Culture in an Era of Remote Work

Brief: As I speak to senior executives in financial firms, I hear a lot of concerns about the difficulties of maintaining corporate culture in an era of remote work. Employees used to absorb the organization's culture by coming to the office and observing the behavior of its leaders — how they dress, how they talk and how they treat their subordinates. But subtle nuances of body language and voice intonation can easily be lost on remote workers facing a day of back-to-back video calls. The cultural paradigm of remote work is still being defined. However, if you follow the four steps below for remote work, plus periodic requirements for in-person meetings, you can create a vibrant culture well designed for your organization. While company culture is hard to define, it is clearly different from organization to organization. Some companies put a high priority on spending time with family. Other companies encourage employees to be entrepreneurial and take calculated risks. Still, other companies are dedicated to building long-term relations with their customers, even at the expense of lower quarterly profits. As companies recognize that remote work is here to stay, either full or part time, managers need to proactively take actions to preserve and reinforce the key elements of their corporate culture.

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Finding New Ways of Navigating the Changing Landscape

Brief: As hedge funds continue to adapt to changes caused by Covid-19, the infrastructure firms employ will have to continue to be relevant and sufficient. Alongside this, firms will have to keep up with the increased levels of reporting and regulatory requirements that institutional investors expect,” comments Craig Stanley, CFA, Chief Operating Officer, Enko Capital. In fact, from an operational standpoint, the firm has deepened and extended its operational and IT infrastructure to ensure the team is able to work remotely for as long as necessary. Although Enko made a seamless transition to remote working, it has posed challenges to capital raising. “In-person meetings and due diligence are now conducted virtually. This has caused a decline in progress with certain investors who wish to complete their due diligence in-person. Having said this, Enko was still able to onboard a number of new investors, including a NYSE-listed US corporate pension fund, in 2020,” observes Stanley. From an investment perspective, Enko adapted to the uncertainty caused by the pandemic. In terms of strategy, the investment team sought new ways to navigate the ever-changing market conditions and took advantage of the opportunities resulting from these changes. In 2020, this led to the Enko Africa Debt Fund producing its best annual return since inception.

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M&G Property Portfolio Re-Opening Leaves Two Still Frozen Property Funds in the Spotlight

Brief: Managers of listed property vehicles have spied an opportunity to flag the benefits of the closed-ended structure as two open-ended property funds remain frozen and the industry awaits the outcome of the Financial Conduct Authority’s consultation on liquidity. Earlier this week, the authorised corporate director of the M&G Property Portfolio announced the fund will reopen on 10 May after almost 17 months of being frozen. The fund was shut to trading in December 2019 due to liquidity reasons after its independent valuer slashed the value of its retail holdings, prompting a wave of redemptions. M&G’s fund reopening leaves just the Aegon Property Income and the Aviva Investors UK Property funds still closed – the only two out of the raft of funds forced to suspend trading last March as the Covid pandemic made it difficult to value underlying assets. Aegon Asset Management says the fund remains on course to reopen in Q2 and the managers continue to make good progress with asset sales in order to raise liquidity. Aviva Investors says the fund remains closed while it takes action to ensure a flow of liquidity. “We are mindful that the fund could experience a higher-than-usual volume of redemption requests if it was to reopen for dealing,” it says.

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€123 (US$150.7) Billion Capital Raised for Global Non-Listed Real Estate Investment in 2020

Brief: Despite the outbreak of the COVID-19 pandemic, global real estate investment managers raised at least €123 billion (US$150.7 billion) of new capital for non-listed real estate in 2020, according to the Capital Raising Survey 2021, published today by ANREV, INREV and NCREIF. However, total capital raised in 2020 fell relative to the record high of €196 billion (US$220.3 billion) attained in 2019, largely as a consequence of the pandemic. Nearly a third of managers said they hadn’t raised any new capital in 2020, with many citing a lack of available product as the main reason. The number of vehicles raising capital also dropped year-on-year from a record 982 in 2019 to 699 in 2020. Despite this slowdown, on average the capital raised by individual vehicles was higher than in 2019 except for those with a North American regional strategy.  The average capital raised for each vehicle with a global strategy was €0.8 billion (US$ 1 billion) versus €0.5 billion (US$0.6 billion) in 2019.  Similarly, investment activity remained robust with 52%% of capital raised in 2020 already deployed. Furthermore, more than two thirds (76%) of investment managers expect an increase in capital raising activity over the next two years.

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Research and Development: An Investment Thesis for UK Recovery

Brief: But despite the UK’s strengths, Research & Development (R&D) spending lags many peers and draws attention to the opportunity to invest smarter and benefit from the economic recovery. Government support, eg, through R&D tax credits, is a timely lever to help drive higher returns. The economic benefits of R&D can be sizeable and persistent. For example, every pound spent on medical research delivers an annual return of about 25 pence, forever. These benefits flow through the economy, and so the government policy is to support R&D. But businesses benefit too, for example the UK government’s Innovation Report estimated that firms that consistently invest in R&D are 13 per cent more productive. So the opportunity is for investors to leverage this as part of their investment thesis. Currently, the UK only invests the equivalent of just 1.7 percent of GDP on R&D – well below the OECD average of just over 2.3 per cent. The British government has set a target of 2.4 percent by 2027. But even then, the UK would still fall short of leading nations Israel (4.9 per cent), South Korea (4.3 per cent) and even the US (2.7 per cent). The UK needs to set its sights higher to deliver more economic benefit.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 22, 2021:

  • The United States’ Centers for Disease Control and Prevention (CDC) are “in the process of putting together further guidance” for vaccinated Americans, according to White House senior adviser for COVID-19 response, Andy Slavitt. Earlier this month, the CDC told Americans it was safe for fully vaccinated people to resume travel if they maintain social distancing and wear masks. Slavitt was not specific on a timeline for updated guidance, but when they are they will “be science-based and hopefully very practical.” 

  • In Canada, the federal government is looking into options to toughen border controls as cases continue to surge in the country and around the globe, such as India. Conservative Leader Erin O’Toole has called for the temporary suspension of certain flights, referring specially to the B1617 variant first found in India and the P1 variant, first detected in Brazil. Speaking to CTV News Wednesday evening, Public Safety Minister Bill Blair said, “I can confirm for you that we are actively considering all and any additional measures that are or will be necessary to protect Canadians and I hope that we will be able to share more that with you in the next 24 hours or so.”

  • The United Kingdom’s Department of Transport says they are working on producing coronavirus passports that will be available “as soon as possible”. The government is assuming many tourist hotspots will require visitors to have been vaccinated against COVID-19 or provide proof of a recent negative test before entering the country. Under the government’s current roadmap for easing restrictions, foreign holidays for people living in England could be allowed as early as May 17th. This news follows the Daily Telegraph report that COVID-19 passports would at first only be available for those travelling overseas, with a wider domestic scheme unlikely to be ready next month. 

  • The United Arab Emirates (UAE) will consider “strict measures” to limit the movement of people unvaccinated against the coronavirus. Earlier in the week, Saif Al Dhaheri, a spokesman for the UAE’s National Emergency Crisis and Disaster Management Authority, said the following via social media: “Strict measures are being considered to restrict the movement of unvaccinated individuals and to implement preventive measures such as restricting entry to some places and having access to some services, to ensure the health and safety of everyone.” No further details were given for the “preventative measures” beyond restrictions to access on certain places and services in the country. The UAE also made a move on Thursday to suspend all flights from India, including transit passengers, as coronavirus cases in the country spiked to global records.

  • In Japan, Prime Minister Yoshihide Suga recommended placing Tokyo, Osaka and other areas under a state of emergency to help stop the surge of coronavirus cases just three months out before the capital is supposed to host the Olympics. Prime Minister Suga said he will make a formal decision after consulting with experts, but it is already expected to be put in place fairly quickly, with media reporting the measures likely taking effect from April 25th until May 11th. When put into place, it will be the third emergency measure used by the government since the pandemic started.

  • Bloomberg is reporting for the second time in five months, the air-travel bubble between Hong Kong and Singapore has been called off. Bloomberg’s source, asking not to be identified as they’re aren’t authorized to speak publicly on the matter, said no new date has been set yet. The cancellation was initiated by the Singapore side, and is another bump in the road for the two Asian financial hubs that have been trying to revive bubble plans since previous plans in November were shelved due a virus flareup in Hong Kong.

Covid-19 – Due Diligence And Asset Management

Hedge Fund IPM Shuts Doors After Losing $4 Billion in Pandemic

Brief :Informed Portfolio Management, a Swedish hedge fund that had relied on statistical models to devise its strategies, is set to shut its doors and return investor capital after losing roughly $4 billion during the pandemic. IPM, whose main owner is Stockholm-based investment firm Catella AB, had assets under management of close to $5 billion in late 2019, before the pandemic hit. A year later, that amount had more than halved to $2 billion, with the investor exodus since then depleting assets to about $750 million. “The recent investment market for systematic macro-funds has unfortunately been very challenging and IPM has had weak returns and large capital outflows,” Catella said in a statement on Thursday. “IPM will ensure that all investors are treated fairly. This includes that all investors will be able to redeem their capital in the coming months according to each fund’s specific liquidity rules.” IPM had used quantitative strategies, which rely on mathematical models instead of on-the-ground analysis of portfolio assets. But the historical statistical models the fund built proved unequal to the task of predicting how markets would move during the volatility brought on by the coronavirus pandemic. IPM joins a growing list of hedge funds shutting down in recent years as investors rethink their allocations to the industry. More hedge funds have closed than started in the last six years, with 770 of them shuttering in 2020, according to data compiled by Hedge Fund Research Inc.

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Dimon: The Post-Lockdown Economic Boom has ‘Absolutely’ Begun

Brief: JPMorgan Chase (JPM) CEO Jamie Dimon says the post-lockdown economic boom has "absolutely" begun. On a client webcast on Wednesday, the long-time bank CEO echoed his upbeat views on the U.S. economy that he recently outlined in his annual letter to JPMorgan shareholders in which he predicted an economic boom that "could easily run into 2023." Pointing to the vaccine rollout, Dimon said on the webcast we are "lucky to have it" and people "should be happy to go back to work," both factors that are "critical" to a stronger economy. Dimon, who has been vocal about raising the minimum wage, acknowledged that many have lost their jobs and are suffering from the pandemic, but he believes that the economy today is "very different" from 2009. "For the rest of Americans, their savings accounts are up $2 trillion," Dimon said. "Home prices are up. Asset prices are up. They're anxious to get back to work. There's a little bit of euphoria in places that have opened up. Even driving in today, to New York, driving down the streets, you have a lot more mothers and schools are open. Companies are in very good shape." Dimon added that JPMorgan sees higher spend in cities that have opened up and that spending on travel and leisure is higher than pre-COVID.

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Hedge Fund Assets Soar to All-Time High, Fuelled by Record Gains and Booming Investor Confidence

Brief: Global hedge fund industry assets swelled to a new record high of USD3.8 trillion in the first three months of 2021, as managers recorded their strongest quarter since 2000 and investors duly poured more capital into a broad selection of strategy types, with the biggest hedge funds still taking the largest slice of client money.  Hedge Fund Research estimates that net asset inflows from allocators reached about USD6.1 billion between the start of January and the end of March. That brought total net new inflows since Q3 2020 to USD22.1 billion. Overall, hedge funds added a total of USD201 billion during the three-month period, as HFR’s main Fund Weighted Composite Index spiked 6 per cent in Q1 – its strongest quarter since 2000. Assets managed by event driven hedge funds have now topped more than USD1 trillion for the first time ever, only the second hedge fund strategy type to hit the USD1 trillion mark after equity-focused funds surpassed that milestone in Q4 last year. Total event driven capital grew by USD85.4 billion in Q1, bringing this sector’s assets to USD1.05 trillion. Event driven sub-strategy capital increases were led by special situations, which saw USD46 billion of performance-based capital gains in the quarter, bringing sub-strategy assets to USD483.3 billion. Overall, HFR’s Event Driven index surged 8.2 per cent in the three-month period.

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A Year of Turmoil for the Private Markets, but PE Continues to Outpace Public Markets, finds McKinsey Report

Brief: McKinsey & Company today published its Global Private Markets Review 2021 – A year of disruption in the private markets – maps out a tumultuous year for global private markets, as Covid-19 wrought havoc on fundraising and deal activity, but finds that private equity rebounded vigorously in the second half of 2020, as buyout fundraising nearly doubled in Q3 and Q4 relative to the first half of the year in North America, and more than tripled in Europe. The report also concludes that, by nearly any measure, private equity has still outperformed public market equivalents – with net global returns of over 14 percent. Overall funds raised fell slightly year-on-year due primarily to an apparent short-term discontinuity in the early months of the pandemic, but, the pre-pandemic pace of fundraising returned by Q4. AUM growth and investment performance in most asset classes eased off in the spring as the industry adjusted to new working norms, then came back strong in the latter half of the year. Private equity purchase multiples kept climbing and dry powder reached another new high, standing at USD1.4 trillion (60 percent of the private markets total), having grown 16.6 per cent annually since 2015.

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Blackstone Bets Billions on Reopening and Travel Revival

Brief: Blackstone Group Inc. is doubling down on a post-Covid 19 economic recovery, investing heavily in businesses that will benefit from a world that’s gradually reopening. New York-based Blackstone invested $17.7 billion in the first three months of the year, buying hotels including Extended Stay America Inc., private-jet operator Signature Aviation Plc and U.K. travel company Bourne Leisure. Investors continued to bet solidly on Blackstone, which saw its assets under management swell to a record $648.8 billion, the company said Thursday in an earnings report. Even as credit markets recovered and the stock market kept soaring, travel- and entertainment-related assets were struggling as people continued social distancing and local restrictions limited capacity at hotels and other venues. Blackstone says the firm is now seeing signs across its portfolio of companies that people’s behavior is shifting: At the Cosmopolitan hotel of Las Vegas, money going into slot machines was at record levels. Forward bookings for travel in the U.K. were also at a high. “This should be good time for the real world,” Blackstone President Jonathan Gray said in an interview.

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Airlines see COVID Setback Driving Industry to $48 Billion Loss

Brief: The airline industry’s chief lobby group widened its estimate for losses this year by about a quarter, saying new COVID-19 flare-ups and mutations have pushed back the timeline for a restart of global air travel. Carriers will lose about $48 billion in 2021, the International Air Transport Association said Wednesday in an online presentation. It had earlier forecast a $38 billion deficit. “This crisis is longer and deeper than anyone could have expected,” said Willie Walsh, the former chief of British Airways owner IAG, who is now IATA’s director general. “Losses will be reduced from 2020, but the pain of the crisis increases.” The downward pivot comes as airlines contend with new travel bans and restrictions arising from outbreaks in large aviation markets such as India and Brazil. Governments of countries that have ramped up vaccinations most quickly have become cautious about restarting travel to prevent the import of new variants that could prove resistant to jabs. This week, the U.S. State Department said it would declare about 80% of the world’s nations no-go zones. In Europe, the U.K. has held off on confirming a plan to restart travel in mid-May, saying it will decide closer to the date.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday April 21, 2021:

  • In the United States, a recent report is forecasting health officials will be running into another coronavirus related issue within the next month. The Kaiser Family Foundation (KFF) issued a report on Tuesday stating that while timing may differ by state, across the United States as a whole, over the next two to four weeks, the country will see a tipping point on vaccine enthusiasm. What the report is saying within the next month, everyone who wanted a COVID-19 vaccine likely will have it and convincing those that don’t, will become much harder. This fact will be alarming to health officials as many have stated in the past – including White House adviser – Dr. Anthony Fauci – that somewhere between 70-85% of the country needs to be immune to the virus – either through vaccines or previous infection to suppress the spread of current coronavirus and their variants.
  • In Canada, Ontario reported over 4,200 new cases of COVID-19 on Wednesday as the provincial government says they are looking at “enhancements” to the federal government paid sick leave program. Ontario Health Minister Christine Elliott suggested on Tuesday that a provincially-run paid sick leave program was being considered – something that health officials have been asking for months now, with the calls only getting louder during this crushing third wave. The help can’t come soon enough: according to the Ministry of Health, there are now 790 patients being treated in Ontario ICU’s – the most ever and of those, 566 require a ventilator to breathe, which is also a record. All of this is happening as Premier Doug Ford had to be moved into isolation after learning a staff member he came in close contact with tested positive for COVID-19 on Monday. Premier Ford will continue to carry on his duties as provincial leader, as well as communicate with the public while in isolation.
  • In the United Kingdom, economic analysts are reporting Britain’s economy is rebounding rapidly, as all signs point to a boom in spending after reopening. New economic data published on Wednesday shows the average forecast for UK growth in 2021 is now 5.7% - up from the forecasted 4.8% just a month before.  While indoor dining is still prohibited, the reintroduction of outdoor dining rose 105% last weekend. The numbers were 220% above what was dubbed “Super Saturday” last July when the hospitality sector re-opened after the first lockdown. Reports also have visits to shopping malls, major train stations and city centres rebounding sharply as Britons have had enough of looking at their four walls at home.
  • Germany was met with protestors in Berlin on Wednesday, hours before and after legislators passed a proposal by Chancellor Angela Merkel’s government to radically change COVID-19 restrictions in the country. Media reports said more than 150 people were arrested after police clashed with demonstrators near the Reichstag in Germany’s capital city where the voting was taking place. If passed by Germany’s upper house later in the week, states will see automatic uniform restrictions imposed in areas where coronavirus is spreading too fast. They include a 10pm to 5am curfew, closure of leisure and sports facilities and shops and schools potentially shifting to distance learning, depending on the severity of the outbreak.
  • In France, media are reporting, citing a source close to President Emmanuel Macron, that the country plans to lift domestic travel restrictions and ease a nationwide curfew as of May 2nd. These conditions are based off expectations that COVID-19 daily cases will continue to fall over the coming weeks. President Macron also intends to stick to a goal of allowing restaurants to serve customers outdoors, as of mid-May, while reopening cinemas, theatres and museums with reduced capacity. Elsewhere in the country, the government announced it will be donating 100,000 vaccine doses to the World Health Organization led COVAX initiative. According to the President’s office, France is the first country to voluntarily give vaccine doses to the COVAX initiative, which is designed to share vaccine access to poorer countries around the world.
  • Fearing a threat to economic recovery, Indian Prime Minister Narendra Modi is calling on state leaders to reconsider lockdowns and avoid shutting businesses. India only trails the United States for most COVID-19 cases in the world after reporting more than 200,000 cases daily for more than a week. In a televised address Tuesday evening, Prime Minister Modi stated: “I urge states that they should consider lockdowns as the last option. They should earnestly try to avoid lockdown and focus on micro-containment zones.” According to Bloomberg, the nation’s benchmark stock index fell to its lowest since the end of January on Tuesday and the rupee is Asia’s worst-performing currency this month due to India becoming the global epicenter for the latest outbreak.

Covid-19 – Due Diligence And Asset Management

Coronavirus Surge Spills over into World’s Financial Markets

Brief : Financial markets around the world are waking up to the risks of another coronavirus flare-up. Asian markets, blighted by rising cases from Japan to India, have underperformed their global peers since the start of March, just when they looked set to benefit from an acceleration in the global recovery. Currencies of nations stung by the virus have been underperforming those where vaccinations are surging ahead. And now the angst is starting to spread, with recovery trades under pressure and U.S. stocks sliding for two successive days. “Markets that have become too comfortable with the re-opening trade and have loosened social restrictions can be in jeopardy with any Covid spike and variants,” said Paul Sandhu, head of multi-asset quant solutions Asia Pacific at BNP Paribas Asset Management. “Markets with high vaccination rates somewhat circumvent this downside risk.” The World Health Organization said Tuesday that cases are rising in all regions except Europe, with the largest increase last week seen in Asia as India battles its biggest wave. Japan moved closer to declaring a virus emergency as infections spread in its two-biggest and economically important urban areas, Tokyo and Osaka, while health authorities in Toronto will order workplaces across Canada’s biggest city to close if they have more than five confirmed cases.

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Neuberger Has Asked Staff to Return in September, CEO says

Brief: Neuberger Berman Group employees have been asked to return to the office in September yet they will still be allowed some flexibility to work remotely, Chief Executive Officer George Walker said. The New York-based firm “asked folks to find a way to start to reconnect with the office,” Walker said in a Bloomberg Television interview on Wednesday. “That can be team meetings, that can be coming in a day a week. And we’re starting to see that as more folks come back in,” he said. “Work from home has worked really well,” he said. “Our performance has never been better, our flows have never been better. But there’s going to be a new normal that’s in between, and that’s going to be trickier than people realize.” Neuberger is not mandating that returning workers obtain vaccinations, just that they have been tested for Covid-19, he said. The company manages $429 billion for institutions, advisers and individual investors.

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Wealth Platforms ‘Must do Better on Digital’

Brief: The majority of wealth management platforms are failing to live up to customers’ demands when it comes to digital features, according to recent research from data provider Refinitiv. In its wealth management report, “The Race for Digital Differentiation”, Refinitiv found that only 37% of the 1,030 investors surveyed gave their platforms top marks for the digital experience. The study also found that investors are placing greater importance on digital capability with 72% calling for better integration of news updates and 80% asking for real-time data to enhance their analysis. In addition, 20% of investors are not receiving alerts they would find helpful. In response to the findings, Refinitiv called on wealth managers to accelerate their digital initiatives in order to meet customers’ heightened expectations. “The consequences of Covid-19 have emphasised just how vital it is to have a robust, customer-centric digital experience enriched with deep insights and analytics,” said Charles Smith, head of digital solutions, wealth at Refinitiv.

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Dan Sundheim’s D1 Shakes off its $4 Billion Reddit-Fueled Fiasco

Brief: It was the kind of moment that would normally sink a hedge fund: Dan Sundheim was on Zoom, apologizing to clients for losing $4 billion in a single month. He ticked off strategy changes, noted he wasn’t going to dock his team’s pay and then headed back to work. Now, mere weeks later, the episode is behind him. Sundheim has recouped about 90% of what he lost in January when retail investors attacked his short bets on the likes of GameStop Corp. That recovery has put his D1 Capital Partners back into one of the most rapid ascents ever seen in money management. His presentation that February day fit what investors have come to expect from the 44-year-old billionaire -- unemotional yet sincere, supportive of his 51-member team, and unfazed by risk -- attributes they say helped him amass $20 billion in less than three years since setting up shop. Sundheim, who’s posted annualized returns of nearly 30%, is among stock pickers helping to reanimate an industry hit by client defections over mediocre returns.

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Saudi Arabia Seeks to Speed Privatizations to Help Ease Deficit

Brief: Saudi Arabia is hoping to speed up privatizations to narrow a budget deficit that ballooned last year due to the pandemic and a slump in oil revenue. The kingdom aims to strike around 15 billion riyals ($4 billion) worth of infrastructure deals with private investors this year, the head of the National Center for Privatization, Rayyan Nagadi, said in an interview. That would be the most since the body was established to accelerate privatizations in 2017. It also aims to complete several asset sales this year, he said, declining to give a value for how much could be raised. Progress on Saudi Arabia’s privatization plan has been much slower than anticipated when Crown Prince Mohammed Bin Salman launched his economic transformation plan in 2016 and outlined plans to sell stakes in utilities, soccer clubs, flour mills and medical facilities. Since then the government has managed to sell stakes in assets including Saudi Aramco and flour mills. It has also signed deals with private investors to build new schools, but it has fallen short of hopes of raising $200 billion in the first few years of its privatization push.

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In 2021, Insurers are Risk On

Brief: Insurers plan to increase the overall risk in their investment portfolios as they emerge from the precarious market environment of the pandemic, according to Goldman Sachs Asset Management. The firm’s annual insurance survey, expected to be released on Wednesday, found a 34 percent increase in insurers looking to take on more portfolio risk. This year’s survey aggregated the views of 286 CIOs and CFOs representing over $13 trillion in global balance sheet assets, a study sample which, according to GSAM, accounts for about half of the global insurance industry.  “We have not seen the kinds of readings that we have in the survey since the last time we came out of the Great Recession in 2012 and 2013,” Mike Siegel, global head of insurance asset management, said at a virtual press conference held on Tuesday. In the survey, insurers indicated an inclination to increase risk across all types, including equity, credit, liquidity, and duration. While plans to increase risk are trending positive across the globe, insurers based in the Asia Pacific region expressed the most risk-on views, with a net 58 percent of Asia Pacific respondents planning to take on more credit risk over the next 12 months. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday April 20, 2021:

  • In the United States, as more and more people become fully vaccinated and get the itch to travel, the state department is updating their advice on international travel. It is looking like a “staycation”, or domestic travel for most in the foreseeable future, with the department having approximately 80% of countries worldwide in the highest, “Level 4: Do Not Travel” category. Anyone planning to travel to a country in the remaining 20% is advised to reconsider before proceeding. Currently only three places in the world are in the United States’ lowest tier of travel (safest) – level one – they are Macau, Taiwan and New Zealand.

  • As Canada is currently dealing with the largest wave of coronavirus cases, it should come as no surprise the federal government has extended border restrictions for at least another month with the United States. Public Safety Minister Bill Blair announced on Tuesday that Canadian and United States officials have agreed to keep the border between the countries closed to non-essential travel, as well as the existing restrictions on non-U.S. international travel into Canada until May 21st. Blair and the federal government also extended testing and quarantine requirements for those entering Canada via air, including minimum stays in quarantine hotels until May 21st.

  • United Kingdom Prime Minister Boris Johnson has set up a coronavirus task force designed to search for simple treatments, such as a pill that could be taken at home for people who have tested positive for the virus or exposed to someone who has. Prime Minister Johnson has the ambitious hope that this solution could be made available by the autumn even though there is no such treatment identified that could be used for even a trial run currently. Even though the UK is in the best shape in terms of COVID-19 numbers in months, the prime minister has acknowledged soaring cases elsewhere and his scientists’ warnings of yet another wave has him concerned and planning ahead as much as possible.

  • France has become the first European Union (EU) nation to begin testing a digital coronavirus travel certificate as part of a European-wide scheme. The TousAntiCovid app, part of France’s contract tracing program, has been upgraded to store negative COVID-19 test results on travellers’ mobile phones. The hopes are the travel certificate will allow people to travel freely through EU nations by the summer. Le Monde is reporting the system could eventually be adopted for public events such as concerts, festivals and trade fairs, although not for bars and restaurants.

  • In the Philippines, a senior government official said the country will begin clinical trials of several drugs, including the anti-parasite medication ivermectin, in patients with COVID-19 to determine their efficacy in battling the virus. The country’s food and drug regulator are in conflict with some politicians who have started promoting the use of ivermectin for the coronavirus and giving out free doses while the regulator counters there is a lack of evidence supporting the use of the drug as a treatment. The Philippines is seeing a renewed surge in coronavirus cases and are looking for anything to help out with a vaccination drive that has only inoculated 1.3 million people out of a population of more than 108 million. 

  • The Australia-New Zealand travel bubble was thrown a scare just a few days after its start when a New Zealand airport worker tested positive for COVID-19. Speaking to the press, New Zealand Prime Minister Jacinda Ardern said the worker had been fully vaccinated early in the rollout and had tested positive as part of routine screening. The worker was assigned to cleaning planes from “red zone”, or “high-risk countries” and all signs point to this case having no connections with new Australian arrivals. Prime Minister Ardern said these kinds of cases had been anticipated by both Australia and New Zealand when they announced the quarantine-free travel bubble rules.

Covid-19 – Due Diligence And Asset Management

M&G to Reopen Property Fund After 17-Month Suspension

Brief : M&G Investments will reopen the M&G Property Portfolio and its feeder fund at midday on 10 May 2021, more than 17 months after it first pulled down the shutters. Over the course of the suspension, the managers have exchanged or sold 38 properties for a combined discount to net asset value of 0.1%, of which more than a third were retail properties. This has brought the cash level to 33.2%, which the authorised corporate director and depositary of the fund believe is a "suitable liquidity position" to meet redemption requests and protect investors who wish to remain invested. Due to the rebalancing caused by an attempt to raise liquidity, the fund is now overweight to industrials and has seen its retail exposure fall from 38.4% to 28.1%. From 25 June, the portfolio will change to dual pricing on a full spread basis to "provide greater clarity, reduce the potential for large price fluctuations and provide stronger alignment with the fund's long-term horizon". It will also seek to maintain a 20% cash weighting during normal market conditions to "enhance liquidity management".

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Events Show Risk Management is “Inextricable” from Alpha Generation, says Man Group CIO Sandy Rattray

Brief: Hedge funds and asset managers must design portfolios to successfully weather volatile markets, and “invest heavily” in technology, rather than focus on predicting the next downturn, says Man Group chief investment officer Sandy Rattray. Rattray – who has co-authored a new book on strategic risk management along with Man Group strategy advisor Professor Campbell Harvey, and Otto Van Hemert, director of core strategies at quant-focused Man AHL – believes the upheaval of the past 12 months have rendered tail event predictions “nearly impossible.” Their new book, titled Strategic Risk Management: Designing Portfolios and Managing Risk, explores how risk management should be incorporated into the core design of investment portfolios, and examines how portfolio balancing and balanced return streams can be achieved through volatility targeting of higher-risk asset classes, and which defensive strategies offer capital protection. In the book, Harvey, Rattray and Van Hemert argue that risk management is “inextricable” from alpha generation.

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BlackRock Sees Distress Still Lurking Despite Drop in Bankruptcies

Brief: Availability of cheap credit has masked distress, but it’s still out there, says BlackRock managing director Mark Kronfeld. You just have to know where to look. “Just because you’re not seeing bankruptcy filings doesn’t mean there isn’t distress,” said Kronfeld, a member of the global credit platform at BlackRock Inc., which manages $9 trillion in assets. There will be fewer traditional bankruptcies -- besides pre-packaged filings -- as long as there’s enough liquidity to ride out the pandemic, according to Kronfeld, who focuses on special situations and distressed investments. Still, there may be more bankruptcy filings in the sectors most impacted by the pandemic, including retail and energy, Kronfeld said. “Companies, even with increased leverage, are able to get cheap financing,” but risks remain, he said on a virtual panel hosted by SierraConstellation Partners. There was about $90 billion of distressed debt trading as of April 16, down from almost $1 trillion in March 2020, according to data compiled by Bloomberg. That includes nearly $5 billion in retail bonds and loans, and $15 billion from oil and gas companies.

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New ICON Report Predicts Record Deal Activity for Cybersecurity Sector

Brief: Cybersecurity fundraising activity is on track for another record year, according to ICON Corporate Finance’s April 2021 cybersecurity sector report, which reveals that sector valuations have hit historic highs over the past 12 months. In Q1 2021 USD3.7 billion was invested by VCs globally, an increase of +35 per cent. That looks set to shatter 2020’s record USD8.3 billion (+22 per cent). The resilience of the market was demonstrated as more than USD22 billion in M&A deal value was transacted,­­­ despite the challenges of a global pandemic Public cybersecurity stocks have traded at all-time highs, seeing the sector more than double in value since lockdown restrictions began in March 2020. ICON’s Cybersecurity Sector Index, meanwhile, shows that the sector is now trading at 11x revenues and company is predicting that a wave of cybersecurity businesses are ready to capitalise on the extraordinary market opportunity, boosted by VCs flooding the industry with necessary funding.

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Logistics Investment: “Unsellable Properties”

Brief: Money has been pouring into the logistics sector from a variety of different sources, including US banks, institutions, private equity, and firms in the Middle East and Far East. “That has driven down yield considerably over the last six months,” according to Legal & General Investment Management senior fund manager Jonathan Holland, speaking to Funds Europe for the April issue. A lot of the new capital can come with a lack of knowledge, according to Thomas Karmann, head of logistics at Axa Investment Managers’ alternatives division, Axa IM Alts. “Risk is often not correctly priced anymore and there is hardly any differentiation of location and market depth for (re)letting. There seem to be less single asset sales and more portfolios, containing some less attractive buildings which would almost be unsellable on a standalone basis,” he said.

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Private Equity Risks a Hit From Trudeau’s Interest-Deduction Cap

Brief: The budget unveiled by Canadian Prime Minister Justin Trudeau’s government on Monday includes a tax provision that could affect enterprises that rely heavily on debt financing, including private-equity firms and natural-resource companies. The change affects tax deductions that certain businesses can take for the interest they pay on loans. Trudeau’s government wants to limit those deductions to an amount equal to 40% of a company’s earnings starting in 2023, and 30% after that. It estimates the measure would raise C$5.3 billion ($4.2 billion) in additional revenue over five years. The measure is meant to prevent companies from minimizing their tax burden by having their Canadian units hold a disproportionate amount of debt. Several other countries in the Group of Seven and European Union are introducing similar limits on interest deductibility as part of a tax-fairness plan by the Organization for Economic Cooperation and Development.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday April 19, 2021:

  • In the United States, as half of Americans have already received at least one dose of a coronavirus vaccine, the Centers for Disease Control and Prevention (CDC) director had one message on Monday: the vaccines are working. CDC Director Dr. Rochelle Walensky said data compiled by the governing body, shows out of 84 million fully vaccinated Americans, there have been less than 6,000 reports (less than one percent) of breakthrough cases, which were people that contracted COVID-19 even after being fully vaccinated. “Here’s the bottom line, getting a vaccine will help protect you. It will help protect others and it will help us end this pandemic…,” said Dr. Walensky.
  • In Canada, the Ontario provincial government is busy trying to clean up a coronavirus restriction mess, created by themselves. Over the weekend, Ontario Premier Doug Ford had to backtrack on some controversial restrictions laid out Friday afternoon by his government – reopening playgrounds and rescinding enhanced police powers after multiple police forces wanted no part of the responsibility and potential backlash of randomly stopping people and asking them where they were going, and if their trip was essential. Ontario health officials are continuing the call for essential workers needing paid sick days, so they don’t go to work sick and potentially spread more of the virus. However, the provincial government has yet to budge on this request. Prime Minister Justin Trudeau has called on other provinces to help out either with vaccines and/or essential health care staff if they can. While some are considering the call for health care staff, no other provincial premier is willing to share their vaccine allotment currently.
  • In the United Kingdom, a first of its kind study is being launched at the University of Oxford. People who have already beaten COVID-19 will be deliberately reinfected to shed some light on how to develop more effective vaccines against the virus. On Monday, the university said it is looking for 64 healthy, previously infected volunteers from 18 to 30 years old to be studied under a controlled, quarantined environment for at least 17 days. Participants will be infected with the original strain from Wuhan, China and followed for a year. Elsewhere in the UK, Prime Minister Boris Johnson has cancelled his trip to India where he was to meet with Prime Minister Narendra Modi next week amid record-high COVID-19 cases in India over the weekend. The UK has also put the country on its red list for travel bans.
  • As mentioned, India is experiencing an explosive surge in COVID-19 cases, which has caused the government to send its capital, New Delhi, into a weeklong lockdown as of Monday night. The city of 29 million people has fewer than 100 beds with ventilators and fewer than 150 beds available for patients with critical care. India reported over 270,000 new infections on Monday, the highest daily rise since the pandemic began. The country is also behind on inoculations with only 120 million doses administered so far to a population of nearly 1.4 billion – however announced a plan to start vaccinating everyone over the age of 18 as of May 1st. 
  • Israel’s government eased restrictions, allowing its citizens out into the streets without a mask for the first time in a year over the weekend. The government is pointing to its successful vaccination drive on its reasoning for relaxing the mask-wearing rule. Close to 62% of Israel’s 9.3 million citizens have received a first dose of the vaccine – with full vaccination not far behind at 57.4%. Israel has also fully reopened all schools and universities.
  • In what is being called a major reset of Australia’s COVID-19 vaccination program, people over the age of 50 will now receive their vaccine dose from their doctor, or state-run mass vaccination hub. The news was made after Prime Minister Scott Morrison had the first of what will now be bi-weekly national cabinet meetings to address vaccine rollouts and coronavirus concerns. The state hubs will be using the country’s stock of AstraZeneca vaccines, which was mostly shelved recently due to blood clotting concerns. Australia’s vaccine rollout is well behind other commonwealth countries and according to national media outlet, ABC – at its current rate – Australians wouldn’t be fully vaccinated until August 2023.

Covid-19 – Due Diligence And Asset Management

Private Equity’s Health-Care Role Draws Spotlight

Brief : Health care is too large a part of the economy for private equity investors to ignore, but a burning spotlight on how managers run some hospitals and nursing homes is prompting a few asset owners that generally prefer to quietly engage with general partners to speak up. Demand for health care is rising: In the U.S., health-care spending grew 4.6% to $3.8 trillion in 2019, amounting to 17.7% of gross domestic product, according to the Centers for Medicare & Medicaid Services. In an attempt to ride the wave of this growth, private equity investment in health care has grown, to $120.1 billion in 874 deals in 2019 and $95.6 billion in 938 transactions in 2020, from $58.2 billion in 2007, according to PitchBook Data Inc. At the end of the first quarter, private equity firms had invested $20.2 billion in 182 deals. Private equity health-care funds outperformed the internal rate of return of all private equity for funds raised between 2006 and 2017, PitchBook data shows. The median IRR for health-care fund vintages 2006 through 2008 was 10.3% compared with a 9% IRR for all funds of the same vintages. Health-care funds raised from 2015 to 2017 earned a 16.8% median IRR, out- performing the median IRR for the same vintages of all private equity funds of 13.1%.

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UK National Debt Jumped by a Quarter in 2020 to Fight the Pandemic

Brief: The world’s governments took on eight years’ worth of borrowing in 2020 to fight the global pandemic, increasing their debts by over a sixth (17.4 per cent) according to the first edition of Janus Henderson’s Sovereign Debt Index.  As eight in ten countries in the index slipped into recession, governments added USD9.3 trillion to their tab. This is equivalent to one seventh (14.8 per cent) of the world’s GDP, a bigger slice than was needed to shore up the economy in the aftermath of the global financial crisis. The world’s government-debt tally ended the year at a record USD62.5 trillion, almost four times its 1995 total (+273 per cent) and equivalent to USD13,050 per person. The biggest economies took on the biggest debts in 2020, but the UK had the highest budget deficit Some countries have taken on more debt than others to meet the challenges of the last year. In absolute terms the biggest economies naturally borrowed most. The US, Japan and China alone accounted for more than half of the world’s new government borrowing in 2020. Compared to the size of its economy, the biggest borrower was the UK with a government budget deficit worth one fifth of its GDP, but the US, Brazil, South Africa, Spain, Canada, Japan and Singapore all ran deficits at least one eighth the size of their economies too.

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Bankers Return Downtown Just in Time for Brookfield Dubai Tower

Brief: ICD-Brookfield has had to ride Dubai’s economic roller-coaster since opening the largest standalone office tower in the city last September when the worst of the coronavirus outbreak appeared over. More than half a year and another spike in infections later, regular office life remains a way off. Even without the pandemic casting a shadow over commercial real estate, the $1.5 billion high-rise arrived at a time when about a quarter of all offices stood vacant despite rental prices dropping by over 35% in the past six years. After initially halting lease negotiations, many multinationals are now coming back and looking to conclude deals, according to Rob Devereux, chief executive officer of ICD-Brookfield. Seven firms finalized contracts in the first quarter of this year, following agreements with 11 companies including UBS Group AG in the previous three months. Julius Baer, Natixis and EY signed before the tower opened. The building’s occupancy rate is approaching 55% in terms of signed leases, Devereux said. For Devereux, who leads a venture equally owned by Brookfield Asset Management Inc. and Dubai’s sovereign wealth fund, the outlook is upbeat as firms look to rebuild their work culture, with the vaccination rates suggesting the city could be near herd immunity.

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Regtech Industry Backs FCA Calls for ‘Purposeful’ AML Policies

Brief: Regtech industry experts have spoken out in support for the FCA’s recent call for ‘purposeful’ AML controls and financial fraud action. Speaking at the AML & ABC Forum 2021 at the end of March, Mark Steward, Executive Director of Enforcement and Market Oversight and a member of the Executive Committee at the FCA addressed some of the investigations, legal cases and challenges facing recent money laundering activity in the UK, and called for better systems and controls that are “purposeful, efficient and courageous in identifying suspicious activity.” Steward went on to state that system and controls currently in place are flawed. Reference to the GBP37.8 million fine imposed on Commerzbank AG’s London Branch and the GBP96.6 million fine against Goldman Sachs for systematic AML failures were used to showcase inadequate screening and fraud detection systems. No comment was made towards the most recent criminal case against NatWest due to ongoing investigations. Interestingly, Mark Steward also stated that AML systems are at significant risk of becoming overly complicated, bureaucratized, vulnerable to gaming by less scrupulous players, and expensive. He therefore suggested that AML systems and controls “must be focussed explicitly on the activating purpose and function of those controls, to ensure the system is not just a bureaucratic process and to ensure it cannot be gamed.”

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Banks Bet on Wealthy Clients Who Got Even Richer During Pandemic

Brief: As the nation’s banking giants steer their way out of the pandemic, they’re focused on a key category of clients: wealthy people. Citigroup Inc. plans to “double down on wealth” and concentrate its efforts on international hubs popular among high earners: Singapore, Hong Kong, the United Arab Emirates and London, the company said when it announced earnings last week. At Bank of America Corp., affluent clients’ account balances surged 31% to a record $3.5 trillion, lifted by a buoyant stock market, and it added more than 7,000 households in the first quarter. New assets at Morgan Stanley jumped. “I could talk for hours on this one -- I think we’re incredibly well-positioned in wealth,” Jane Fraser, Citigroup’s new chief executive officer, told analysts last week. Focusing on major markets means “our capital, investment dollars and other resources are better-deployed against higher-returning opportunities in wealth management,” she said. The world’s 500 richest people added $1.8 trillion to their combined net worth last year, lifting the total to $7.6 trillion, according to the Bloomberg Billionaires Index. In the U.S., the economic resurgence has affected people in wildly uneven ways, with many Americans growing wealthier amid roaring stock and home prices even as almost 10 million people remain unemployed. Some are calling it a “K-shaped recovery.”

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UK M&A Remained Active in Opening Quarter of 2021

Brief: After a collapse in cross-border dealmaking in the first half of 2020 in the wake of the pandemic, foreign investment into the UK has risen considerably in recent months, according to the latest UK M&A data from Mergermarket. Inbound M&A reached GBP58.7 billion (196 deals), over 3x higher than during the first quarter of 2020 (GBP18.6 billion). This also represents the highest quarterly inbound deal count since 3Q17 (200 deals). Private equity buyouts in the UK grew to highest quarterly deal count on Mergermarket record in the first quarter of 2020, with sponsors spending a total of GBP20.5 billion across 132 deals. As a result, private equity firms have now spent at least GBP10 billion in six of the last eight quarters. After a significant decrease in the first half of last year, private equity exits have also increased considerably. There were 75 exits worth a combined GBP10 billion in 1Q21, the highest number of exits seen in a quarter in the UK on Mergermarket record. As a result of the GBP14.2 billion tie-up between National Grid and Western Power Distribution, energy, mining and utilities was the most active sector by value at GBP20.7 billion across 28 deals. Investment in tech, meanwhile, continues to grow. The GBP20.4 billion deployed in the sector accounts for just over a quarter of UK dealmaking in 1Q21. Business services remains the most active sector by deal count, recording 100 deals (GBP2.3 billion) this year – up from 93 (GBP1.4 billion) in the equivalent period last year.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday April 16, 2021:

  • In the United States, the Biden administration announced Friday it would spend $1.7 billion to expand the country’s ability to track coronavirus variants. “At this critical juncture in the pandemic, these new resources will help ensure states and the CDC have the support they need to fight back against dangerous variants and slow spread of the virus,” White House COVID-19 Testing Coordinator Carole Johnson said.  The money, which will be taken from the last pandemic relief package, will go toward sequencing the genomes of coronavirus samples, creating six new genomic epidemiology centers and building an infrastructure to unify how sequencing data is shared an analyzed.

  • In Canada, CTV news is reporting Ontario Premier Doug Ford’s government, via their ministry of health, has sent a letter to every other province and territory asking for help with health-care resources. However, it appears mixed messaging is being sent as during a news briefing on Friday, Prime Minister Justin Trudeau said the federal government was willing to offer that help in the form of the Canadian Red Cross with their mobile vaccination teams and sending aid to hospitals and long-term care homes. Almost immediately, the Ford government responded, forgoing the help offered, stating unless it came with more supply (vaccines) the Red Cross wasn’t needed. “We do not have a capacity issue, we have a supply issue,” said Premier Ford’s office in a statement. The latest modelling was released for Ontario in regard to their COVID-19 cases and it doesn’t look good – even with ongoing vaccination efforts – the province could see a worst-case scenario of 18,000 new infections per day by the end of May if current trends continue. Ontario reported just over 4,800 cases on Friday. 

  • The United Kingdom government is insisting the red list of countries is under “constant review” amid concerns of a new variant popping up in the country that was first identified in India. The variant, known as B.1617, has been confirmed in 77 cases in the UK, including some in London. Prime Minister Boris Johnson is set to visit India later this month, despite concerns over the variant and surging case numbers in India. Elsewhere, The Guardian is reporting senior government officials are raising concerns about the mass expansion of rapid coronavirus testing as England opened up earlier this week. Figures produced by government officials estimate only 38% of self-reported tests are thought to be accurate, based on the current prevalence of the disease. Last week, Prime Minister Johnson urged everyone in England to take two rapid-turnaround tests a week.

  • In Germany, Chancellor Angela Merkel is reported to be facing an uphill battle in her push for the widening of powers as COVID-19 cases surge in the country. Addressing legislators in the lower house on Friday, Chancellor Merkel was interrupted by heckling from Germany’s far-right AfD party, which has vocally and persistently opposed COVID-19 lockdowns. The 16 state governments are also reluctant to cede authority over healthcare to the federal administration. If the bill is passed, Chancellor Merkel’s government can tighten restrictions, even if regional leaders resist them.

  • China posted a 18.3% first quarter year-to-year growth, the strongest since the country began keeping records in 1992. The large jump reflects the deep slump the world’s second largest economy suffered when Wuhan became ground zero for the coronavirus pandemic a little over a year ago.  First quarter retail sales jumped by 34% compared to 12 months ago, while fixed-asset investment in urban areas gained nearly 26% and industrial production increased by more than 24%. Economists have forecasted China’s GDP should grow by 8.9% in 2021.

  • Reuters is reporting a vocal critic of Brazil’s President Jair Bolsonaro is expected to lead a congressional inquiry on the government’s handling of the coronavirus pandemic. Sources, requesting anonymity because the decision is not final, are saying Renan Calherios, a former president of the Senate, is expected to lead the inquiry. Calherios will be in charge in suggesting what hearings take place and ultimately be responsible for drafting the final report, with proceedings expected to start in the next week or two. Brazil currently has the world’s second-worst death toll from the pandemic overall and currently the highest number of daily deaths anywhere.

Covid-19 – Due Diligence And Asset Management

Wall Street Can’t Stop Smashing Records While Pandemic Lingers

Brief : The U.S. struggled to emerge from the pandemic, and its biggest bank broke an earnings record. JPMorgan wasn’t alone -- Citigroup and Morgan Stanley did the same. And Goldman Sachs? Yes, Goldman too. Wall Street thrived during 2020’s year of global catastrophe, and it’s doing even better in 2021. JPMorgan Chase & Co.’s soaring investment-banking fees boosted profit to US$14.3 billion, the most the centuries-old firm has ever earned in a single quarter. Citigroup Inc., where fees from underwriting shares quadrupled, saw record quarterly profit of US$7.94 billion. And Morgan Stanley posted its highest net revenue yet. And Goldman Sachs Group Inc.’s US$17.7 billion of revenue and US$6.84 billion of earnings both set records in a quarter of Reddit-fueled stock-market mania. Fees from putting together deals for companies helped lift investment-banking revenue to a record US$3.77 billion, while revenue for Goldman’s asset-management arm reached a high of US$4.61 billion. Other lenders had records too. Bank of America Corp.’s investment-banking fees climbed more than 60 per cent to a record US$2.25 billion. It also helped that banks released money from the stockpiles they had set aside for loan losses. Even at Wells Fargo & Co., plagued for years by scandal, profit soared sevenfold -- but not to a record.

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Pandemic Destroyed Fewer U.S. Firms than Feared, Fed Study Shows

Brief: Fewer than 200,000 businesses in the United States may have failed during the first year of the COVID-19 pandemic, a lighter toll than initially feared and one that may have had relatively little impact on unemployment, according to Federal Reserve research. The figure contrasts with the early forecasts that the pandemic would leave America’s “Main Street” desolate as well as with polls that continue to show large percentages of U.S. small business owners are worried about their survival. Perhaps 600,000 businesses, most of them small firms, fail in any given year, and U.S. central bank researchers estimated that from March 2020 through February of this year the figure has been perhaps a quarter to a third higher. That included 100,000 “excess” failures among firms engaged in close-contact services such as barbershops and nail salons, a sector described by the Fed research group as the sector hardest hit by the economic fallout from the pandemic. While potentially devastating for the owners and employees of those firms, “relative to popular discussion … our results may represent an optimistic update to views about pandemic-related business failure,” the authors wrote.

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The Biggest Alternative Firms Will Make More Money From Fees in 2021

Brief: Major alternative asset managers will rake in higher fees over the next couple of years as investors continue to flock to alternative investments, according to Morgan Stanley equity analysts. In their preview of publicly-traded alternative asset managers’ first quarter earnings on Friday, the analysts predicted fundraising will drive 17 to 18 percent of average fee-related earnings growth in 2021 and 2022. In addition, they anticipated an increase in gross realized performance fees of 56 percent in 2021 and 33 percent in 2022. According to the Morgan Stanley analysts, alternative investment firms are better positioned to benefit from the economy recovery compared to traditional asset managers, given the acceleration in mergers and acquisitions, initial public offerings, and SPACs, or special-purpose acquisition companies. “The structural growth story of alts weathered the pandemic much better than feared, and now as the economy transitions into a growth stage, demand for alternatives remains intact driven by a low-rate backdrop and asset owners struggling to meet return targets that’s leading to an increasing willingness to trade liquidity for returns that could drive fundraising above our base case,” wrote analysts Michael Cyprys, Peter Kaloostian, and Ian Buchanan.

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Fed’s Waller says U.S. Economy ‘Ready to Rip’ with Strong Growth

Brief: The U.S. central bank should continue to maintain monetary stimulus even as the U.S. economy is starting to experience rapid growth, said Federal Reserve Governor Christopher Waller. “Just because the growth rates are really good and everything’s looking like we’re heading out in the right direction, we’re still trying to make up a lot of ground,” the most recent addition to the Fed’s board told CNBC in an interview on Friday. “We’ve got a long way to go. There’s no reason to be pulling the plug on our support until we’re really through this.” Waller, the former research director of the St. Louis Federal Reserve, was sworn onto the board in December after the U.S. Senate confirmed his nomination by former President Donald Trump. Waller’s remarks follow comments earlier this week by Chair Jerome Powell that have reinforced the message that policy makers will not be in a hurry to withdraw support even as the economy rebounds. They enter their blackout on public comment at midnight Friday ahead of the April 27-28 meeting of the Federal Open Market Committee.

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Polar Capital Bounces Back From Covid Lows as Assets Surge to £21bn

Brief: Polar Capital has bounced back from its Covid lows with assets surging to a record £20.9bn in the last 12 months. In an update ahead of its final results the Aim-listed manager said assets under management had jumped 10% over the quarter to 31 March and 71% from £12.2bn a year ago after the Covid crisis wiped £2bn from its total. It has now doubled the size of its business over three and half years which chief executive Gavin Rochussen said was “ttestament to our strategic focus of offering a diversified range of funds whilst maintaining a rigorous focus on performance and active management”. Polar’s shares were up 1.6% at the time of writing, hitting a record high of 734p. The £8.7bn boost to AUM over the past 12 months was driven by £2.1bn in net flows, a stark contrast to 2019’s £1.2bn worth of redemptions, as well as £5.2bn from market movement and fund performance and £1.7bn from acquisition-related activity. This more than offset the £301m loss from the closure of the Polar UK Absolute Equity fund which was wound down due to the poor health of manager, Guy Rushton, who subsequently passed away.

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Apollo Weighs Florida Outposts as Escape from New York Heats Up

Brief: Apollo Global Management Inc. is considering opening additional offices in Florida and elsewhere as it seeks to lure and retain talent in a world upended by the pandemic. The private equity firm is weighing outposts in Miami and West Palm Beach, as well as an office elsewhere in the U.S., and another in Europe, said spokeswoman Joanna Rose. Apollo, which will retain its New York headquarters, recently surveyed employees about where they prefer to work as part of a strategy to attract a broader talent pool, she said. Apollo, with 1,729 employees at year-end, has been gathering feedback over the past year as the pandemic forced companies to rethink how their employees work. Many are relocating or experimenting with more flexible work arrangements. Apollo is among those to test giving employees the option of working remotely two days a week. The pandemic has also prompted Wall Street firms to consider moving staff to locales with no state income taxes, such as Florida and Texas. This year, Goldman Sachs Group Inc. asked managers to identify employees who wish to relocate to West Palm Beach. Several hedge fund firms, including Elliott Management Corp., Citadel and Point72 Asset Management, announced plans to establish offices in Florida.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 15, 2021:

  • In the United States, the fight against the coronavirus took a political turn Thursday with White House advisor Dr. Anthony Fauci, CDC Director Dr. Rochelle Walensky and Biden administration COVID-19 response chief science officer, Dr. David Kessler all taking questions in front of the House Select Subcommittee on the United States’ coronavirus response. Dr. Kessler noted Americans should expect to receive booster shots to protect against coronavirus variants as they could “challenge” the effectiveness of the current inoculations. The political fire was left for Dr. Fauci, who has bridged both the Trump and Biden administrations in the fight against the pandemic. Republican Senator Jim Jordan and Dr. Fauci engaged in a back-and-forth verbal battle, debating when Americans can get back to normal and Dr. Fauci countering that the representative from Ohio’s questioning was making this “a personal thing”. 
  • With Ontario breaking another daily coronavirus record with more than 4,700 cases on Thursday, Canadian health experts are calling on the federal and provincial governments to curb interprovincial and international travel. For instance, while the B117 strain is driving much of the third wave in Ontario and elsewhere, the P1 variant, associated with Brazil, is surging in British Columbia and spreading in Alberta and Ontario. Early research in a non-peer reviewed study from Brazil, suggests the P1 variant is as much as 2.5 times more transmissible than the original virus strain. Dr. Srinivas Murthy, an infectious diseases and critical care doctor in Vancouver, British Columbia, said now is the time for provinces to limit travel to only the “absolutely essential” and the federal government should consider limiting domestic flights.
  • In the United Kingdom, London residents new-found freedom might be short-lived, a disease expert has warned. Professor John Edmunds, an epidemiologist at the London School of Hygiene and Tropical Medicine, and a member of Sage, said it was not yet clear whether the testing of hundreds of thousands in multiple London boroughs would be enough to stop a cluster of cases growing. Surge testing has been ramped up in London in order to stop the spread of a South African variant of the virus. Professor Edmunds stressed mass testing is needed as the “vast majority” of the population would have to be vaccinated to “keep a lid on this epidemic more or less permanently”, which would take a “long time”. 
  • Bloomberg is reporting Italy’s debt in 2021 will exceed the country’s previous record, not seen since the aftermath of World War I. The new borrowing tally of 159.8% of Italy’s GDP was ratified by Prime Minister Mario Draghi’s cabinet on Thursday and exceeds the probable all-time high of 159.5% achieved in 1920. Italy is the European Union’s third largest economy, and its spending is backed by the European Central Bank, which is buying up government bonds to keep spreads between countries under control and make pandemic-era debt less expensive to service.
  • India recorded more than 200,000 new COVID-19 cases on Thursday, which marks the highest one-day surge since the pandemic broke out. The country of close to 1.4 billion people, has recorded more than 14 million cases with over 173,000 dying from complications caused by the virus. India’s capital – New Delhi – has announced movement restrictions in order to try and curb the recent spread. Already with a nighttime curfew in place, authorities announced that all malls, gyms and spas in the city would close and restaurants would only be allowed to make deliveries.
  • After hitting the 100-day mark until the Tokyo Olympic Games are set to begin, a Japanese government official sowed doubts they might get cancelled for a second time in two years. Toshihiro Nikai, secretary general of the ruling Liberal Democratic party told broadcaster TBS: “If it seems impossible (to host the Olympics) any more, then we have to stop it, decisively.” Nikai went onto add, “if the Olympics were to spread infection, then what are the Olympics for?” The comments are the first sign of change from the Japanese government who, along with Olympic organizing officials, have been steadfast that the Games would go ahead later this summer after being cancelled in 2020.

Covid-19 – Due Diligence And Asset Management

Lending Slump Worries Investors as U.S. Bank Profits Soar

Brief : Investors are signaling fresh concern about when the largest U.S. banks will get back to their bread-and-butter business: lending money. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon’s statement about “challenged” lending -- a word he quickly said he regretted using -- pressured share prices, as did shrinking quarterly loans across banks. Bank of America Corp. reported a 14% decline in loan balances in the first quarter from a year earlier, while Citigroup Inc. said Thursday that loans tumbled 10%. Those dropoffs followed the 4% slump in loan balances at JPMorgan and the 9% decrease at Wells Fargo & Co., reported Wednesday. Executives from all the companies struggled to provide precise targets of when they expect loan balances to increase or by how much, while expressing optimism about economic growth coming out of the pandemic. At the four largest U.S. banks, the lending slump and low interest rates combined to sharply cut net interest income -- what lenders make from borrowers minus what they pay depositors -- even as their trading and investment-banking businesses sent earnings soaring.

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How the Pandemic Impacted Gold Prices

Brief: Just over a year from the first UK lockdown, Covid-19 has upended day-to-day life and financial markets on an unprecedented scale. And the gold market was not immune. The last twelve months have been a rollercoaster for the asset class, categorised by a series of records triggered by the pandemic. Despite this, the benefits of gold have been borne out. Clearly, at a time of such market turmoil, gold has spent much of the last 12 months fulfilling its traditional role as a hedge against uncertainty. In many ways, the pandemic drove gold to new heights as it put the asset class front and centre of investors’ minds as they sought refuge from the financial fallout. As such, investors flocked to gold-backed ETFs in 2020, with a record 877 tonnes added to global holdings, the equivalent to US$48 billion (€40 billion). Heightened risk and uncertainty weren’t the only drivers of higher investment demand. Ultra-low interest rates, which reduced the opportunity cost of holding gold over competing assets such as bonds and fiat currencies, and fiscal expansion drove investment flows higher. 

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IACPM: Credit Managers See Stabilizing Effect from Stimulus Programs

Brief: Credit portfolio managers feel their portfolios are stabilizing thanks to the liquidity provided by government stimulus programs, according to the first-quarter survey from the International Association of Credit Portfolio Managers. Rising liquidity has helped allay fears of rising corporate credit defaults, particularly in North America. In the first quarter, 25% of surveyed managers forecast rising credit defaults in the region over the next 12 months, well down from 63% in the fourth quarter. Som-lok Leung, IACPM's executive director, said in a phone interview the new positive outlook is due to government stimulus. "It's definitely a significant shift, and I think the comments from our members are certainly that the default situation has been pretty good," Mr. Leung said. "Defaults have been relatively low with some exceptions here and there, but overall, I think government stimulus — not only in the U.S., but in multiple countries — has had its predicted effect."

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Guggenheim’s Minerd Moves to Miami as Firm Eyes Flexible Work

Brief: Scott Minerd, the chief investment officer of Guggenheim Investments, is moving to Miami, the latest high-profile finance executive drawn to a state with no income tax. Minerd, who has lived in the Los Angeles area for years, purchased two penthouses for $12.5 million and plans to combine the properties. That would create a 22,547-square-foot condo that would be the largest in Miami-Dade county, according to Jonathan Miller, president of Miller Samuel. Minerd will keep his mansion in Marina del Rey, but plans to become a Florida resident, according to a person familiar with the matter. The move comes as Guggenheim Investments shifts toward a flexible work arrangement. “We are planning to have flexible use of all our offices to permit people to work and live where they want,” a representative for the firm said in a statement. “This also includes facilitating people living where they wish to live while continuing to serve our clients with excellence.” Finance titans have increasingly been drawn to Florida to escape high taxes in the northeast and California and Wall Street firms have been looking south for office space.

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LPs Eye Investments in Venture Capital and Growth Equity Amid Record VC Dealmaking

Brief: At this point in the pandemic, institutional investors are ready and willing to make additional investments in private markets, particularly through venture capital and growth equity investments, according to Eaton Partners. The fund placement agent, which is part of Stifel Financial, on Wednesday released its latest limited partner pulse survey, which questioned LPs about their views on alternative investments. When asked about how soaring public market valuations have impacted their opinions of private market investments, over half of participants reported that private markets look more attractive to them now. This figure indicates a shift from the firm’s September 2020 pulse survey, which found that nearly half of investors were not currently looking to make changes in their capital market allocations. According to the new survey, investors are increasingly looking to buyouts, growth equity, and venture capital above other private asset classes. Sixty-one percent of survey respondents reported plans to up their buyout allocations, roughly consistent with the proportion who planned to do so in September.

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Flexible Working is More than Just a Laptop at Home, survey says

Brief: Employers risk creating an unhealthy working culture in the post-pandemic world by embracing remote work without true flexibility, a survey led by King’s College London found. Businesses need to avoid giving the illusion of flexibility while still expecting staff to put in long hours and be responsive at irregular times, according to research by the Global Institute for Women’s Leadership at KCL and employee advisory firm Karian and Box. Almost all organizations polled said they are planning for a future involving hybrid work -- split between home and office locations -- though just 36 per cent are redesigning job roles with more flexibility in mind. Without more targeted support, parents and carers in particular risk erasing the boundaries between work and home life and seeing their workload increase, the survey said. Workers and employers around the world are grappling with new ways of operating after a year that has seen many step away from the office to slow the spread of COVID-19. About a third of working adults in the U.K. are currently operating full-time from home, according to Office for National Statistics data. Of the 254 organizations surveyed by King’s College, 90 per cent said they had increased support for working at home, with about three quarters doing more to help their staff work flexibly.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday April 14, 2021:

  • In the United States, the Treasury department has formed an office to oversee many of the pandemic-relief programs funded by Congress over the past 13 months. The Office of Recovery Programs will be charged with money appropriation under the American Rescue Plan, Cares Act and other legislation by Washington lawmakers, so that it is reaching the intended targets. The new office will be run by Jacob Leibenluft, an adviser to Treasury Secretary Janet Yellen. Elsewhere in the country, senior government officials are dealing with the fallout from the CDC and FDA’s recommendation on Tuesday of pausing the Johnson & Johnson COVID-19 vaccine due to blood clotting concerns. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases said on Wednesday the pause is indeed just that – a pause – not a cancellation – and he doubts it will extend for weeks to months.

  • In Canada, the province of Ontario was hit with a double dose of bad news on Wednesday. The province’s health authority reported more than 4,100 new cases and 28 deaths due to COVID-19 and two clinics in a Toronto suburb had to cancel 10,000 vaccine appointments from Wednesday through Monday April 19th due to a lack of supply. Elsewhere in the country, the reformation of Canada’s Atlantic travel bubble has been put on hold. Originally scheduled to resume April 19th, the premiers of New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador agreed to postpone the free travel between all four provinces until May 3rd at the earliest due to COVID-19 variants concern.

  • England’s care home staff could be forced to obtain a COVID-19 vaccine, according to the government. The Department of Health and Social Care has launched a five-week consultation to determine making vaccination a condition of employment for home care staff, with a decision expected in the summer. According to the Scientific Advisory Group for Emergencies (Sage), 80% of staff and 90% of residents need to be vaccinated to provide a minimum level of protection against COVID-19 outbreaks. The latest vaccination numbers show that 78.9% of older adult care home staff have had a COVID-19 inoculation. 

  • Denmark was the first country to postpone the use of the AstraZeneca COVID-19 vaccine due to rare blood clot cases. On Wednesday, they became the first country in the world to stop using the vaccine altogether. In a statement, Denmark’s health agency head, Soren Brostrom said the results of investigations into the blood clots “showed real and serious side effects.” Denmark’s decision to drop the AstraZeneca COVID-19 inoculation from its vaccination rotation means the country plans to wrap up its vaccination programme sometime in early August, as opposed to July 25th. About 15.3% of Denmark’s 5.8 million population have received the AstraZeneca vaccine as their first dose.

  • Israel announced it will open its borders to international travelers as of May 23rd under a phased approach. Israel has been closed to tourism for over a year since the start of the pandemic. While full details are expected to be released next week, Israeli media is reporting travellers will need to be fully vaccinated and the first phase will start with tour groups as they will be easier to monitor. If all goes well, individual travellers will be welcomed in a later phase, but that is not expected to happen until likely, July. Visitors will be required to undergo a PCR test before boarding their flights and upon arrival, undergo a serological test to prove their vaccination.

  • In Brazil, scientists are becoming increasingly more worried about the P1 coronavirus variant circulating in the country. A recent study is showing the P1 variant is mutating in ways that could make it more able to evade antibodies and thus, make the virus more resistant to vaccines. Felipe Naveca, one of the authors of the study, said the changes appear to be similar to the South African variant against which studies have shown some vaccines have substantially reduced efficacy. Brazil’s outbreak is also increasingly affecting younger people with data from March showing more than half of all patients in the ICU were aged 40 or younger.

Covid-19 – Due Diligence And Asset Management

Private Equity Landlord Seeking to Evict Renters Despite Ban

Brief :Corporate landlords backed by private-equity firms are seeking to evict thousands of cash-strapped tenants despite a federal moratorium, a group tracking the companies said. Firms controlled by Pretium Partners LLC have sought evictions for unpaid rent against 1,300 residents in seven states, the Private Equity Stakeholder Project, an advocate for industry accountability, said in a report issued Wednesday. Pretium rental companies Progress Residential and Front Yard Residential Corp. moved to oust tenants after the Centers for Disease Control issued a halt to evictions in September, with a disproportionate number of filings in majority Black areas, according to court filings tracked by the non-profit. The companies operate more than 55,000 rental units. “Progress and Front Yard comply with the CDC eviction moratorium and have not evicted any individual who is covered by a valid CDC declaration,” a Pretium spokesperson said in a statement. “We work with our residents and seek to avoid eviction, but if a resident declines to pay rent and will not constructively engage to find a resolution, we reserve the right to proceed in accordance with applicable law.”

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EU to Borrow Around 150 Billion Euros Annually for Recovery Fund

Brief: The European Commission plans to borrow around 150 billion euros annually until 2026 to finance the bloc’s unprecedented plan to make its economy greener and more digitalised, making it the biggest debt issuer in euros, the Commission said on Wednesday. The amount of the EU economic plan was agreed at 750 billion euros in 2018 prices, but now totals around 807 billion euros in current prices. The money is split into 338 billion euros in grants and 386 billion in loans for the 27 EU countries and the rest is for joint EU programmes. It will be distributed over the next five years with a third to be spent on reducing CO2 emissions in the EU’s 27 economies. Each of the 27 EU governments can get 13% of its share of the money this year in pre-financing before projects paid for by the scheme reach agreed milestones and targets. If EU governments focus on the grants component of the pre-financing this year, EU borrowing in the third quarter could be around 45 billion euros, Budget Commissioner Johannes Hahn said.

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AMF Warns French Firms on Cybersecurity Complacency

Brief: French asset managers have been warned that they could be nurturing a false sense of security over their management of cybersecurity risks. The warning comes from the industry watchdog, the Authorite des Marches Financiers (AMF) following a thematic review. The regulator noted that while cybersecurity practices have improved, there remains a lack of preliminary work on mapping the most sensitive data. Based on the principle that only what is well-known is well protected, the regulator stated that this could “allow significant vulnerabilities to persist in the systems inspected, nurturing a false impression of security”. The AMF is also concerned about insufficient coordination between asset managers and their third party providers. The thematic review involved spot inspections of five asset managers between 2017 and 2020 and included specific analysis of cybersecurity practices during the first phase of the lockdown between March and May 2020.

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Wall Street Rises as Big Banks Kick off Earnings Season

Brief: U.S. stock indexes rose on Wednesday after upbeat earnings reports from Goldman Sachs and JPMorgan boosted investor expectations of a strong rebound for corporate America amid swift COVID-19 vaccinations. Goldman Sachs Group Inc rose 3.3% after it reported a massive jump in first-quarter profit, capitalizing on record levels of global dealmaking activity. JPMorgan Chase & Co’s shares fell 1.1% even as the largest U.S. bank’s earnings jumped almost 400% in the first quarter, as it released more than $5 billion in reserves it had set aside to cover coronavirus-driven loan defaults. “It certainly is a solid quarter (for banks) ... often the stocks run up into news and then at least initial reaction is some profit taking and we were seeing that this morning in JPMorgan,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey. “I think investors who have invested in the banking sector will feel good about the results and which are likely keep them invested in the sector.”

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Airline Investors See a Post-Pandemic Rebound in Low-Cost Travel

Brief: New money is flowing to low-cost airlines in the U.S. as they take on giant carriers racing to recover from the unprecedented collapse in travel during the pandemic. Two established carriers that had already been flying sold shares in the past month, while two new airlines managed to raise more than $100 million each in a little over one year to cover startup costs. All four share a common trait: low operating costs and a customer base seeking affordable flights after more than a year of hunkering down close to home. They’re striking as the domestic leisure business is rapidly returning, even though industry revenue from corporate and international travelers — the domain of bigger carriers — remains depressed. “Low-cost, leisure-focused, domestic-oriented air travel has been in vogue like it’s never been in vogue before,” said Barry Biffle, chief executive officer of Frontier Group Holdings Inc., which held an IPO in March after withdrawing a previous effort to sell stock seven months earlier. The airline industry has never been particularly kind financially, with more than 200 failures or bankruptcies since 1978. But consolidation among the largest players since the 2008 recession set the stage for a comeback. U.S. carriers had $103 billion in net profits from 2010 through 2019, before the pandemic drove $46 billion in losses.

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Two Extended Stay Directors Opposed Blackstone, Starwood Deal

Brief: It turns out it’s not just some of Extended Stay America Inc.’s top shareholders who oppose its proposed $6 billion takeover. Two of the company’s own directors are against it as well. Extended Stay disclosed in a regulatory filing late Tuesday that while the majority of the board approved the deal with Blackstone Group Inc. and Starwood Capital Group, Neil Brown and Simon Turner opposed it, saying the $19.50-a-share price was insufficient, and below similar transactions in recent years. They were also concerned about the timing of the deal in light of a recent rebound in hotel stocks, and the potential for further recovery with the U.S. stimulus plan and increasing Covid-19 vaccinations, the filing shows. Turner was of the belief a transaction below $20 a share was inappropriate, and also was concerned about changes to the termination fee that were made in order for the buyers to raise their bid to $19.50 a share from $19.25, according to the filing. Extended Stay has two boards, one for the C-Corp and one for the real estate investment trust. Both Brown and Turner sit on the REIT board, according to the company’s website.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday April 13, 2021:

  • The United States’ Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) out of what they are calling an “abundance of caution”, have recommended pausing the Johnson & Johnson COVID-19 vaccine. The United States recorded six reported cases of a “rare and severe” type of blood clot out of 6.8 million doses of the vaccine administered in the country. All six of the cases occurred among women between the ages of 18 and 48 and symptoms occurred 6 to 13 days after vaccination, according to a joint statement from the CDC and FDA. The White House was made aware of the decisions from the CDC and FDA to pause the use on Monday evening, but the Biden administration played no part in the decision, according to COVID-19 response coordinator Jeff Zients. 
  • In Canada, the federal health regulator said it was working with Johnson & Johnson, along with the United States’ CDC, FDA and other international regulators to provide more information on any cases of the rare blood clotting events caused by the COVID-19 vaccine. Canada had approved the one-shot Johnson & Johnson vaccine, but deliveries were not due to start until the end of April. Elsewhere in the country, Prime Minister Justin Trudeau admitted during a news briefing on Tuesday that Canada’s recent fight with spread of COVID-19 variants is threatening the progress made by vaccinations. The country is now in a race with the variants overtaking the pace of vaccination with Canada expected to import enough doses to ensure every citizen can receive a shot by the end of June. 
  • While some United Kingdom residents enjoyed some of the freedoms of “Manic Monday”, Prime Minister Boris Johnson tried to issue a dose of reality on Tuesday. Prime Minister Johnson warned that rapid drops in COVID-19 deaths was largely due to the three-month lockdown that was put in place by the government and not the vaccination programme. Also, as the country begins to open up again, expect the COVID-19 case count to rise once again. Despite the warning, the prime minister noted there was no reason to change the roadmap for reopening the economy. The United Kingdom trail only Israel in the proportion of the population to have received at least one dose of a COVID-19 vaccine. 
  • In Germany, cabinet members have approved legal changes to grant the federal government more power to enforce coronavirus regulations in all German states. The changes made to the German Infection Protection Act now must be passed in parliament, the Bundestag. If given the green light, the new rules would allow Chancellor Angela Merkel’s government to install a “federal emergency brake” to any region in any state with a high incidence of COVID-19 cases and legally required to implement a uniform set of rules outlined by the federal government.
  • India, recognized as one of largest drug manufacturers in the world, is turning to imports to help out with their COVID-19 vaccination programme. On Tuesday, India’s government said it would fast-track emergency approvals for COVID-19 vaccines authorized by Western countries and Japan, which would mean extra doses of the Pfizer, Moderna and Johnson & Johnson shots. According to data, since April 2nd, India has reported the high daily tallies of COVID-19 infections with over 161,000 cases reported on Tuesday.
  • Bloomberg is reporting Hong Kong is planning to only allow vaccinated travelers to fly from the city to Singapore once both governments finalize a travel bubble. The plan to open the borders both ways has been in the works since November 2020 but has been constantly met with delays due to ongoing spikes in coronavirus cases. Both Hong Kong and Singapore are key financial hubs in the Asian corridor and are eager to open their borders and economies. Hong Kong’s latest coronavirus outbreak has been contained in recent weeks with numbers either sitting in the low double-digits or fewer.

Covid-19 – Due Diligence And Asset Management

KKR Seeks to Raise $100 Billion by 2022 After Record Year

Brief : KKR & Co. expects to raise more than $100 billion by 2022, building on last year’s record and an abundance of growth opportunities. “We have many more strategies coming to market now than we did at the beginning of 2020,” Scott Nuttall, KKR’s co-president, said Tuesday at the New York-based firm’s virtual investor day. “Our fundraising pipeline is very large.” KKR took in a record $44 billion last year as investors sought higher-yielding assets. The firm, which oversees $252 billion, has been among the most active dealmakers during the Covid-19 pandemic, investing through the downturn to avoid mistakes it made in the aftermath of the 2008 financial crisis. The firm expects to reach its goal by raising $40 billion to $50 billion in private equity, $15 billion to $20 billion in infrastructure, $10 billion to $15 billion in real estate and $20 billion to $25 billion in credit. KKR is either already in the market with or planning to raise capital for more than 20 strategies this year and next, including its flagship Americas and Europe private equity funds as well as its global impact and opportunistic real estate funds, according to the presentation.

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Banks to See Big Profits as COVID “Bad” Loans Become “Good”

Brief: The nation’s largest banks are expected to report big profits for the first quarter amid renewed confidence that pandemic-battered consumers and businesses can repay their debts and start borrowing again. The brighter outlook allows banks to move billions of dollars worth of “bad” loans back to the “good” pile, in what are known as loan loss releases. The pandemic forced banks such as JPMorgan Chase and Bank of America to put aside billions of dollars to cover potentially bad loans. The sum of money put into these pools is nothing small. Across the entire banking industry — large and small banks alike — a collective $120 billion is set aside to cover these loans, according to data from the Federal Deposit Insurance Corporation. And a significant chunk of it — around $40 billion — was set aside by the nation’s largest financial institutions. These funds, once released, are added to a bank’s bottom line when they report their quarterly profits. Most banks are expected to report significantly improved results compared to the first quarter of 2020.

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EU Governments to Seek Deal on Controversial Covid Passports

Brief: European Union governments will seek to hammer out an agreement Wednesday on technical specifications for so-called coronavirus passports aimed at salvaging the region’s summer tourist season. The “Digital Green Certificates” will offer proof that holders have had a Covid-19 jab or recently returned a negative test, while people who contract the disease should be recognized as immune from day 11 for about six months, according to a draft of the rules due to be discussed at a meeting in Brussels. EU states have been at loggerheads over the passes and the privileges they should convey, and envoys must reach a common position before negotiations with EU lawmakers can begin. The talks come after Johnson & Johnson delayed the European rollout of its vaccine Tuesday pending a review of rare blood clots, dealing a blow to hopes that widespread travel could resume by June. “While the pace of European vaccination has doubled so far in April, compared with that in March, it will have to triple to save part of the summer tourist season and meet the official targets.” Bank of America Corp. strategist Athanasios Vamvakidis said in a note to clients on Tuesday.

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Fed is Taking on a Racist Legacy in the Field of Economics

Brief: As the pandemic slammed the Black community and amplified the conversation around racism in America, the economics profession grappled with an uncomfortable truth: that its historical roots and practices today are mired in systemic racial bias. Last summer, the shock of George Floyd’s death and other instances of police brutality ignited a national debate about inequality. Topics like the racial wealth gap became part of everyday discourse. But at the heart of the problem is not just the prosperity separating White Americans from minorities -- often the Black Americans whose ancestors helped build the economy through enslaved labor -- but also that the very discipline that is a key conduit for improvement remains rife with racial bias. “My view of how economics has to inherently address structural racism starts with economics recognizing the role of institutions and power and politics in shaping economic outcomes,” said Joelle Gamble, special assistant to President Joe Biden for economic policy. “We are trying to practice this differently and say ‘how are we actually driving towards economic growth in a way that is helping more and more people who have been permanently left out?’”

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Raytheon, Final Sponsor to Sue AllianzGI for an Improved Return Technique

Brief: Raytheon Applied sciences Corp. took authorized motion towards Allianz International Traders, alleging mismanagement of an enhanced return technique, the corporate managed for one of many Waltham, Massachusetts-based firm pension funds. The lawsuit, filed April 9 by the corporate’s Pension Administration and Funding Committee within the U.S. District Court docket in New York, alleges that Allianz International Traders breached its fiduciary duties in managing its Construction Alpha methods, leading to losses in February and March 2020 totaling $ 280 million. for the Raytheon Grasp Pension Belief, in keeping with the court docket report. The losses had been incurred previous to the shut of the merger of Raytheon Co. and United Applied sciences Corp. in April 2020.  The pension belief was invested within the Supervisor’s Structured Alpha US Fairness 500 technique. Numeric values ​​in technique names correspond to the quantity of alpha in foundation factors above a corresponding index that the technique is predicted to realize.

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Liquidity Will Delay Default Spike for 2-3 Years, Ares CEO says

Brief: Liquidity pumped into the credit markets during the pandemic could stave off a spike in defaults for several years, Ares Management Corp. Chief Executive Officer Michael Arougheti said. “There’s underlying stress that will find its way into the markets but I don’t think that’s anytime soon,” Arougheti said at a virtual Bloomberg News event this week. Default rates are “artificially low” and asset prices are buoyant because “there’s so much liquidity masking that default rate that we’ve all grown accustomed to seeing at this point in the cycle that we’re probably two to three years out before we start seeing a traditional default cycle play out.” Progress against Covid-19 and a strengthening economy are providing support for small businesses, helped by the Federal Reserve’s easy monetary policy and the Biden administration’s focus on growth, according to Arougheti, whose alternative-investment firm oversees about $197 billion in assets. While the forecast is improving, large swaths of the economy including retail, hospitality and travel have a long road to recovery. “The outlook for small business is probably better than I would have predicted as recently as six months ago, but we’re not quite out of the woods yet,” he said.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday April 12, 2021:

  • In the United States, at the current pace, the country will likely hit a milestone this week with half of American adults receiving at least one dose of a COVID-19 vaccine. According to data, from the Centers for Disease Control and Prevention (CDC), 46% of adults in America have received at least one dose of vaccine and about 28% are fully vaccinated. Elsewhere in the country, the government posted a March deficit of $660 billion, a record high for the month as direct payments to Americans from the Biden administration’s coronavirus stimulus package started to be delivered. The deficit for the six months of the 2021 fiscal year ballooned to a record $1.706 trillion, according to a Reuters report.

  • In Canada, Quebec’s decision to move a Montreal curfew to 8 PM from 10 PM was met with riots in the streets over the weekend. On Monday, Montreal police announced they were investigating multiple reports of mischief, arson, obstructing a police officer and breaking and entering. Officers also handed out 107 tickets to people who violated public health measures. Montreal Mayor Valerie Plante responded via social media condemning the riot, calling it “absolutely unacceptable” and “fatigue linked to your fight against #COVID19 does not in any way justify the destruction of public property and failure to respect the rules. We must remain united and stick together.”

  • In what the media dubbed “Manic Monday”, England returned to restaurants and pubs in record numbers after more than five months of near continuous closure. Bookings were said to be “off the scale” for outdoor patios and rooftop terraces even though the temperature was hovering around 9 degrees Celsius (48 Fahrenheit). United Kingdom Prime Minister Boris Johnson has urged people in England to “behave responsibly” as non-essential shops, gyms and hairdressers also reopen. Scotland, Wales and Northern Ireland are following their own plans to ease lockdown restrictions.

  • Philippines President Rodrigo Duterte has relaxed coronavirus lockdown restrictions in Metro Manila, along with four neighbouring provinces, as hospitals added capacity for patients infected by COVID-19. The nation’s capital along with the four other regions will be placed under a so-called modified enhanced community quarantine until the end of April. Under the loosened restrictions, most people are still required to stay home but more businesses will be allowed to operate while limits on those that have remained open will be eased.

  • Bloomberg is reporting China is making a rare admission when it comes to their fight against the coronavirus. Speaking over the weekend at a forum, George Fu Gao, head of the Chinese Center for Disease Control and Prevention, said something needed to be done to address the low protection rate provided by Chinese vaccines. Research released Sunday showed efficacy rates for the Sinovac Biotech vaccine – deployed also in Brazil and Indonesia – was just above 50%. The number barely meets the minimum protection required for COVID-19 vaccines by leading global drug regulators. Gao suggested that following up inoculations with additional booster shots and mixing different types of vaccines could help address the effectiveness issue.

  • Australia has abandoned its goal to vaccinate nearly all of its 26 million population by the end of 2021, due to the concerning news around the AstraZeneca vaccine. Australia had put most of their eggs in the AstraZeneca basket, but with a possible link to the product and rare cases of blood clots, the country is moving towards advising those under the age of 50 to take Pfizer’s COVID-19 vaccine instead. In a Facebook post on Sunday, Prime Minister Scott Morrison wouldn’t commit to setting any new targets for the country’s vaccination program. Australia had originally planned to have its entire adult population vaccinated by the end of October.

Covid-19 – Due Diligence And Asset Management

Fed’s Bullard says 75% Vaccinations Would Allow for Taper Debate

Brief : Federal Reserve Bank of St. Louis President James Bullard said that getting three-quarters of Americans vaccinated would be a signal that the Covid-19 crisis was ending, a necessary condition for the central bank to consider tapering its bond-buying program. “It’s too early to talk about changing monetary policy,” Bullard said in an interview with Bloomberg Television’s Kathleen Hays Monday. “We want to stay with our very easy monetary policy while we are still in the pandemic tunnel. If we get to the end of the tunnel, it will be time to start assessing where we want to go next.” About 36% of Americans had been given a first vaccine dose and 22% were fully vaccinated, according to the Bloomberg Vaccine Tracker. Centers for Disease Control and Prevention officials have urged Americans to continue to take safeguards, including restricting their travel, with the number of cases rising. “When you start to get to 75% vaccinated, 80% vaccinated and CDC starts to give more hopeful messages that we are bringing this under better control and starts relaxing some of their guidelines, then I think the whole economy will gain confidence from that,” Bullard said.

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Goldman Risk Group Examines 2021 Market Events for Lessons

Brief: Goldman Sachs Group Inc executives are examining how well the bank navigated several major market events this year that caused extreme volatility, people familiar with the matter told Reuters. The review will include a market-wide fire sale of stocks triggered by Archegos Capital Management’s default on margin calls at banks including Goldman, the sources said. The meltdown of Archegos, a New York investment fund run by former Tiger Asia manager Bill Hwang, has sent shock waves across Wall Street and drawn regulatory scrutiny in three continents. Goldman Sachs is also looking more broadly at how it handled recent market events, with a particular lens on compliance and best practices, the sources said. That could include what happened during the Reddit-fueled trading frenzy in equity markets, including shares of GameStop Corp, as well as the U.S. Federal Reserve’s decision to end pandemic-related capital relief for banks, which caused issues in fixed-income markets. Also this year, there was chaos in energy markets in mid-February after a deep freeze in Texas sent the cost of fuel and power sky-high.

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UN Chief Backs Wealth Tax on Rich Who “Profited” From Pandemic

Brief: United Nations Secretary-General Antonio Guterres is calling on nations to institute a wealth tax to help reduce global inequality exacerbated by the Covid-19 pandemic. There has been a $5 trillion surge in the wealth of the world’s richest in the past year even as those at the bottom were made increasingly vulnerable, Guterres told a UN economic and social forum on Monday. “I urge governments to consider a solidarity or wealth tax on those who have profited during the pandemic, to reduce extreme inequalities,” he said. “We need a new social contract, based on solidarity and investments in education, decent and green jobs, social protection, and health systems. This is the foundation for sustainable and inclusive development.” With the Covid-19 fallout causing government debt to swell, and hurting poorer people most, wealth taxes are being debated from California to the U.K. as a tool both to pay down debt and address inequality. U.S. Senator Elizabeth Warren, Nobel laureate Joseph Stiglitz and economist Thomas Piketty are among proponents. In the U.S., Warren, along with Representatives Pramila Jayapal and Brendan Boyle, have proposed a 2% annual tax on households and trusts valued at between $50 million and $1 billion, though the measure is unlikely to garner the support needed to pass, particularly in the evenly divided Senate.

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OSC Study Finds Pandemic has Significant Impact on Retail Investors

Brief: The Ontario Securities Commission (OSC) today released a new study that explores the impact of the pandemic on the behaviours and attitudes of retail investors. This study is part of the OSC’s ongoing efforts to monitor the impact of the pandemic on investors and markets. The COVID-19 pandemic has uniquely affected the financial situation of each retail investor. Most investors are simply trying to endure the hardship and uncertainty of the pandemic, but some see it as an opportunity to increase their participation in the capital markets. “We continue to see the uneven impact that this crisis is having on retail investors,” said Tyler Fleming, Director of the Investor Office at the OSC. “Understanding how the pandemic is affecting different segments of the population is essential for supporting retail investors during this difficult time.”

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Hedge Fund Managers are Feeling Confident

Brief: Hedge fund managers are feeling optimistic about their economic prospects over the next 12 months. In a recent survey, 90 percent of hedge funds reported a positive outlook for their firms’ futures, according to the Hedge Fund Confidence Index, a global index produced by the Alternative Investment Management Association with law firms Simmons & Simmons and Seward & Kissel.  The HFCI was based on a poll over 300 hedge funds across the globe, accounting for approximately $1 trillion in assets, during the first quarter of 2021. Respondents were asked to rate their economic confidence levels on scale of -50 to +50, with +50 indicating the highest level of confidence. Based on responses, the average measure of confidence was +18 percent, a nearly 40 percent increase from the confidence levels reported last quarter “Hedge funds appear to be riding a wave of optimism sweeping the globe as it moves closer to exiting the pandemic,” the group said in the report. The report attributes much of this “cautious optimism” to the increased distribution of Covid-19 vaccinations and the slow lifting of pandemic-related economic restrictions. In the first three months of 2021, hedge funds have also seen a “solid set of results,” returning 6 percent net of fees for the year as of March 2021, according to the report.

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Singapore Firms Miss Women-on-Boards Target as Pandemic Blamed

Brief: Singapore’s largest companies missed a collective target to get more women on their boards, with diversity efforts taking a backseat to combating the coronavirus pandemic. The proportion of women on the boards of the 100 biggest listed companies rose 1.4 percentage points to 17.6% as of end-2020 from a year earlier, according to the Council for Board Diversity. The target was 20%. Some companies didn’t view board diversity as a priority last year as they battled the global outbreak, the council said. “Board diversity, a recognized hallmark of progressive boards even before Covid-19, is more critical now than before,” Loh Boon Chye, co-chair of the council, said in a statement. “Post-pandemic recovery offers opportunities for innovation and business repositioning. Having directors with a wider mix of gender, age, skills, experiences, and backgrounds allows boards the broad-based choices as they assess what is best for the future.” The percentage of top companies with 30% or more women on their boards rose to 16% in 2020 from 12% the year before, the report showed. There were still 18 all-male boards in 2020, and only seven of the top 100 firms were chaired by women.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday April 9, 2021:

  • In the United States, Bloomberg is reporting the country is sitting on a stockpile of more than 20 million AstraZeneca COVID-19 doses even as the inoculation looks increasingly less likely to factor into President Joe Biden’s domestic vaccination campaign. AstraZeneca has yet to request FDA approval for its vaccine and has already been questioned by American regulators for mistakes made during clinical trials and partial data releases. American health officials believe the FDA authorization of the AstraZeneca vaccine would be seen as “really important” due to all the questions surrounding it. However, most health officials are in agreement; the United States doesn’t need the stockpile of AstraZeneca doses and should start donating it to allies and poorer countries that could actually use it.
  • In Canada, Ontario reported 4,227 new cases of COVID-19 on Friday – the second most recorded in a single-day during the pandemic. The country’s most populous province recorded 4,249 new infections on January 8th, but 450 of those were attributed to a data delay. There are currently 552 patients being treated for COVID-19 related sickness in Ontario hospitals – the most since the pandemic began. Due to the record-breaking number, CBC reported Thursday evening that Ontario Health has ordered hospitals in much of the province to stop performing all but emergency and life-saving surgeries because of the growing case load of COVID-19 patients.
  • In the United Kingdom, economists are predicting a roaring start next week when the country’s battered hospitality and retail sectors reopen on April 12th. A chief economist at a London brokerage said extra spending from diners, drinkers and shoppers could be worth half a billion pounds in the first week alone. Over the course of the second quarter, the UK’s economy is expected to grow by around £6 billion as lockdowns are lifted under the government’s roadmap.
  • German Chancellor Angela Merkel plans on taking control back from state leaders and will look to impose restrictions on regions with high numbers of new infections. The news comes as the head of Germany’s disease control agency has called on the country to enter into a two-to-four-week lockdown to prevent hospitals from being overwhelmed. “Germany is in the middle of a third-wave, so the federal government and the states have agreed to add to the national legislation,” a spokesperson for Chancellor Merkel told reporters on Friday. The change to Germany’s COVID-19 pandemic law will likely be put before cabinet on Tuesday.
  • The Japanese government will reimpose restrictions in Tokyo, Kyoto and Okinawa as coronavirus cases rise in those three regions. Prime Minister Yoshihide Suga announced the decision on Friday and the measures will run from April 12th until May 11th in Tokyo and until May 5th in Kyoto and Okinawa. Similar restrictions are already in place in Osaka, Hyogo and Miyagi. Japan’s capital city Tokyo had only been out of their previous restrictions for three weeks. Under the new measures, bars and restaurants are being instructed to close by 8 PM and those that fail to do so, will face fines.
  • In Brazil, a congressional investigation of the federal government’s role in the country’s disastrous pandemic response has been given the green light. Not surprisingly, President Jair Bolsonaro was fuming at the move, blaming “leftist” senators and saying the investigation should instead focus on alleged misuse of federal funds to fight the pandemic by state governors and mayors. President Bolsonaro has been constantly at odds with governors and mayors throughout the pandemic who have imposed restrictions on commerce and public gatherings. Brazil set another record on Thursday with 4,429 Brazilians succumbing to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Guardians of World Economy See Long Recovery Road

Brief : The guardians of the global economy this week implored governments to act to avoid a two-speed rebound where vaccinated, rich nations recover more strongly from the pandemic than poorer countries languishing under the burden of disease and debt. The International Monetary Fund said that it sees the U.S., as well as China, as the locomotive for global economic growth. The world’s largest economy, fueled by trillions of dollars in stimulus spending, is expected next year to surpass its pre-pandemic projected level of output. But many emerging and developing economies, struggling with slow growth and mountains of debt, will take much longer. The central theme of the IMF’s virtual spring meetings with the World Bank was “giving everyone a fair shot” -- a slogan that underlined both concerns about inequality and the importance of speeding up the distribution of vaccines globally.

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Hedge Funds Enjoy Biggest First-Quarter Gains in 20 Years, as Event Driven and Equity Strategies Fuel Returns

Brief: Hedge funds have made their strongest first-quarter start in more than 20 years, gaining more than 6 per cent in the three-month period to the end of March, with returns powered by a mix of successful calls on deep value equities amid accelerated volatility, renewed economic optimism, and soaring cryptocurrencies. Hedge Fund Research’s main Fund Weighed Composite Index, a global, equal-weighted benchmark of some 1400 single-manager hedge funds, advanced 6.08 per cent in Q1, following a 1.02 per cent gain in March. The March gain proved to be its sixth consecutive monthly rise, with Q1 its best opening quarter since 2000, and the index’s fifth-best opening quarter on record. HFR president Kenneth Heinz said deep value, event-driven equities, coupled with credit strategies – including traditional credit arbitrage exposures – and cryptocurrencies have helped fuel industry gains lately, as performance dispersion between winners and losers continues to narrow. Overall, event driven hedge fund managers led the pack, gaining 1.85 per cent in March to put their first quarter return at 8.21 per cent.

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Rebounding Private Flights Fuel M&A Interest in Corporate Jet Services Providers

Brief: As U.S. business aviation traffic rebounds to pre-pandemic levels, a niche, fragmented industry providing services ranging from hangars to fueling is drawing interest from private equity funds and infrastructure investors. Fixed base operators, or FBOs, play a key role in keeping private jets flying, offering services like hangars and fueling, and some buyers are betting the revival in flights could spill over into allied industries. While business jet orders and deliveries dropped in 2020, private flights, which carry smaller groups and promise wealthy passengers less risk of exposure to the coronavirus, have generally fared better than commercial. That is underpinning investor interest in FBOs. The sector recently made headlines when Gatwick Airport owner Global Infrastructure Partners joined forces with Blackstone and Bill Gates’ investment vehicle to make a $4.73 billion offer for Signature Aviation, the largest private jet services firm. There are other deals brewing too. Macquarie Infrastructure Corp has said it is seeking buyers for Atlantic Aviation, the second-largest FBO network, for a deal by year’s end.

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The World’s Wealthiest Countries are Getting Vaccinated 25 Times Faster

Brief: Enough vaccines have now been administered to fully vaccinate about 5 per cent of the global population — but the distribution has been lopsided. Most vaccines are going to the wealthiest countries.  As of Thursday, 40 per cent of the COVID-19 vaccines administered globally have gone to people in 27 wealthy nations that represent 11 per cent of the global population. Countries making up the least-wealthy 11 per cent have gotten just 1.6 per cent of COVID-19 vaccines administered so far, according to an analysis of data collected by the Bloomberg Vaccine Tracker. In other words, countries with the highest incomes are vaccinating 25 times faster than those with the lowest. Bloomberg’s database of COVID-19 vaccinations has tracked more than 726 million doses administered in 154 countries. As part of our effort to assess vaccine access around the world, the tracker has a new interactive tool measuring countries by wealth, population and access to vaccines. 

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Dealmakers Optimistic Private Credit Markets Will Fully Rebound, says new Survey

Brief: Initially sideswiped by Covid-19 in early 2020, private credit markets began to bounce back by year’s end, leaving dealmakers optimistic that private credit might fully rebound in 2021. According to a new survey of 112 private credit industry professionals conducted in February, 91 per cent of investors and 80 per cent of lenders surveyed expect deal flow to increase this year and are optimistic about several deal categories and sectors. For the 2021 Private Credit Survey Report, Katten surveyed an almost-equal weighting of lenders and private equity investors. Those surveyed represent a variety of sectors (including financial services, information technology, consumer staples, communications, industrials and health care) about their outlook on deal flow, readiness to address the London Inter-Bank Offered Rate (LIBOR) phaseout and other issues critical to the private credit industry.

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How Equity Analysts Filled the Covid-19 ‘Information Void’

Brief: The research output of equity analysts went up dramatically during the Covid-19 pandemic — but the accuracy of their forecasts went down, according to a new study from the University of London’s Cass Business School. Compared to the pre-pandemic months, analyst forecasts for company earnings per share, or EPS, increased by 72 percent in March 2020, indicating that sell-side analysts’ “initial response to pandemic-induced market uncertainty is to increase their provision of information,” according to the study’s author Pawel Bilinski, director of the Centre for Financial Analysis and Reporting Research at Cass. For other forecasts, such as revenue, cash flow, and dividend estimates, Bilinksi uncovered a similar pattern. The number of revenue forecasts increased by 80 percent in March, while cash flow forecasts jumped 59 percent and dividend estimates grew by 11 percent, according to the paper. The study was based on over 400,000 EPS forecasts and revenue, cash flow, and dividend estimates made by sell-side analysts from January 2018 to November 2020. The increase in research activity came as the Covid-19 pandemic sent a series of shock waves rippling through the global economy, creating an uncertain and volatile market environment.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 8, 2021:

  • In the United States, Treasury Secretary Janet Yellen urged major economies on Thursday to inject significant new fiscal support to secure a robust recovery. Yellen made the statement to the steering committees of the International Monetary Fund and the World Bank, and also made the point that major economies need to continue supporting developing countries as they struggle with the COVID-19 pandemic, climate change and high debt burdens. The United States are trying to lead the way in that regard, pledging $4 billion USD to the COVAX global vaccine distribution initiative and signalling America could provide excess doses of COVID-19 vaccines to other countries in the future.

  • In Canada, Quebec recorded more than 1,600 cases on Thursday – the most since January 23rd. The rise in cases has Premier Francois Legault and his government considering keeping strict restrictions in place in the hardest-hit cities of Quebec City, Levis and Gatineau. For instance, public health officials have linked 419 cases in recent days to an outbreak at a gym. Schools, restaurant dining rooms, gyms, hair salons and other non-essential businesses have been closed in the three cities mentioned since April 1st. Elsewhere in the country, 16 MLAs of the leading Alberta provincial government have signed a letter speaking out against their own party over its decision to adopt more stringent public health restrictions over a surge in COVID-19 cases. On Wednesday, Alberta recorded 1,351 new cases of COVID-19 – the most since December 31st, 2020.

  • The United Kingdom is set to reach herd immunity against COVID-19 within days, according to scientists. The University College London have used real-time modelling to suggest the UK should pass the critical threshold where the proportion of people who have protection against the virus either through vaccination, previous infection or natural immunity will hit 73.4% by Monday, April 12th. Professor Karl Friston of the University College London though has warned against the notion of speeding up the easing of lockdown restrictions in response to reaching herd immunity, noting: “if we let up, that threshold will go up again and we will find ourselves below the threshold, and it will explode again.”

  • France is set to meet its target of 10 million COVID-19 inoculations a week earlier than projected. French Prime Minister Jean Castex made the proclamation during a visit to a vaccination center near Paris. The government’s next goals are to have 20 million doses injected by mid-May and 30 million doses delivered by mid-June. France is in the middle of its third lockdown due to the coronavirus and French Prime Minister Emmanuel Macron noted last week he hopes the country will be able to reopen museums and restaurant terraces by mid-May.

  • Australia, the Philippines, and the African Union are the latest to deal blows to AstraZeneca as all three countries/regions made moves in recent days. Australia have recommended people under the age of 50 should get the Pfizer COVID-19 vaccine in preference to AstraZeneca – a policy shift that government officials have warned would hold up its inoculation campaign. The Philippines have suspended their use of AstraZeneca shots for those under the age of 60 after Europe’s regulator said on Wednesday it found rare cases of blood clots among some adult recipients. The African Union made the most drastic move of all – dropping plans to buy AstraZeneca’s vaccine from India’s Serum Institute and instead will explore options with Johnson & Johnson.

  • The Japanese government was busy doing damage control on Thursday, denying media reports that they were considering prioritizing COVID-19 vaccines for Olympic athletes ahead of the projected Games later this summer. The report was first made by the Kyodo news agency and met with outrage on social media with many noting the original government plans were to give vaccine priority to medical workers, elderly people, and those with chronic conditions. The chief cabinet secretary, Katsunobu Kato said the government has no plans on giving priority to Olympic athletes. Japan’s vaccination drive is far behind most major economies with only one vaccine approved for use and roughly one million people having received a first dose since February.

Covid-19 – Due Diligence And Asset Management

Powell Vows to Restore ‘Great’ Economy, Plays Down Inflation

Brief : Jerome Powell pledged to get the U.S. back to a “great economy” and invoked a homeless encampment in downtown Washington to make the point that the recovery remains incomplete. Playing down the risk that inflation could get out of control as the pandemic recedes, the Federal Reserve chair told a virtual panel Thursday that his commute home takes him past a “substantial tent city,” and that he thought of the millions of Americans who are still trying to get back to work. “So we just need to keep reminding ourselves that even though some parts of the economy are just doing great, there’s a very large group of people who are not,” he said during the International Monetary Fund panel. “I really want to finish the job and get back to a great economy.” Fed officials have repeatedly stressed that the U.S. economy continues to need aggressive monetary policy support as it recovers from the pandemic, even as the outlook brightens amid widening vaccinations

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UK Investors Flood to Equity Funds in March

Brief: UK investors added record levels of capital to equity funds in March as they bet on the post-Covid economic recovery, according to the latest data from funds transaction network Calastone. In total, UK investors committed a net £2.96 billion (€3.42 billion) to equity funds surpassing the previous record seen in the post-crash bounce of April 2020 by over a tenth, the firm said.  UK-focused equity funds saw a net £610 million added to holdings marking a "startling" turnaround for the asset class, while global equity funds took in £1.84 billion. Meanwhile, global ESG equity funds attracted new capital to the tune of £1.15 billion. Edward Glyn, head of global markets at Calastone highlighted that equity fund managers have enjoyed their best ISA (Individual Savings Accounts) season in years. “New capital has flooded in from investors keen to capitalise on the post-Covid economic recovery,” he said.  Active funds took in the lion’s share of investment, attracting over three quarters of overall net inflows (£2.32 billion). It was their best monthly performance since July 2015.

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Pandemic Impact may Weigh on Commercial Real Estate Recovery

Brief: The distribution of COVID-19 vaccines is fueling optimism that Americans will increasingly return to the ways they used to shop, travel and work before the pandemic. That would be a welcome change for companies that own office buildings and hotels, or those that lease space to restaurants, bars, department stores and other retailers. These have been the hardest-hit areas of commercial real estate over the past year as the pandemic forced many businesses to shut down temporarily or operate on a limited basis. But even as the U.S. economy appears set to roar back to life this year, as many economists now predict, demand trends for commercial real estate could take longer to recover as businesses reassess their post-pandemic needs. This means higher vacancy rates and declining rents this year, especially for retail and office property owners, said Thomas LaSalvia, senior economist with Moody’s Analytics.

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Jersey Finance Supports Research Exploring Post-Pandemic Fund Domiciliation Trends

Brief: The rise of sustainable finance, the impact of Brexit, EU regulation and the fallout of the pandemic all have the potential to shape considerations around alternative fund domicile selection, according to new research published this month by IFI Global and supported by Jersey Finance. Based on the views of alternative managers, law firms and advisors from across North America, Europe and Australasia, including some of the world’s largest investors in alternatives, the research for this new report – entitled ‘The Future of International Fund Domiciliation 2021’ – was carried out between October 2020 and February 2021. Building on the first IFI Global report in this series, published in April 2020, which found that investors and managers want stability when it comes to fund domiciliation, this new report explores how investor and manager attitudes have changed in light of some key developments in the investment space landscape over the past twelve months, including ESG acceleration, Brexit and regulation. Overall, the survey found that investors continue to be the key driver behind domiciliation decisions, and they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation.

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RBC’s McKay Gives Staff a Day off with Workers More ‘Exhausted’ than Ever

Brief: Royal Bank of Canada is giving employees an extra paid day off this year, and its top executive acknowledged that staff are more burned out now than at any time during the COVID-19 pandemic. Chief Executive Officer Dave McKay said in companywide memo on Thursday that many employees have said they’re exhausted and that the bank needs to “eliminate the stigma associated with asking for time to focus, concentrate, and in some cases, log off and recharge.” Burnout has become a more pressing issue for financial firms as the pandemic moves into its second year and some lines of business, including mergers and acquisitions, see a sustained boom in activity. Last month, Goldman Sachs Group Inc. CEO David Solomon said the firm would improve enforcement of a rule designed to ensure junior bankers don’t have to work on Saturdays. His memo came after junior analysts gave managers a presentation showing that some worked 100 hours in a week. RBC, Canada’s largest lender, is also giving its roughly 86,000 employees worldwide a free, one-year subscription to Headspace, a meditation and sleep app. An annual subscription costs US$69.99, according to Headspace’s website.

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Fund Managers Urged to Diversify Their Talent Pool

Brief: Former Schroders COO Markus Ruetimann has called on fund managers to use the pandemic to assemble a more diversified workforce with greater emphasis on IT specialists and data scientists. Writing in the latest edition of the FundsTech quarterly report, Ruetimann stated that the move to remote working had shown the need for “new, more inclusive hierarchical structures and communication channels”. “Future talent pools will need diversifying. IT pioneers and data scientists are likely to play a bigger role than fund managers and data administrators going forward,” stated Ruetimann, chief executive of advisory practice Hardy London and also chair of Aprexo, a data management provider. However, while the institutional asset management industry has talked about the need to reinvent itself in view of the ever-expanding digital economy, few firms have replaced their legacy systems with new technology or hired talent from outside the industry to cater for a more tech and data-dominated operating environment. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday April 7, 2021:

  • In the United States, the National Institutes of Health has begun a mid-stage study to determine the risk of allergic reactions to COVID-19 vaccines made by Moderna and Pfizer. The study, which will be funded by the National Institute of Allergy and Infectious Diseases, will enroll 3,400 adults between the ages of 18 to 69, with about 60% of those participants having a previous history of severe allergic reactions to either food, insect stings or immunotherapy. The results of the study are expected to be released later in the summer.
  • In Canada, Ontario’s “emergency brake” installed last week has done little to stem the third wave of COVID-19 in the province, so instead, a stay-at-home order will be implemented as of 12:01 Thursday morning. Ontario’s ministry of health recorded 3,215 new cases on Wednesday – the most since January 17th and the seven-day average now at close to 3,000. The stay-at-home order is expected to last as long as four weeks and will close all non-essential stores, with big-box stores only permitted to sell grocery and pharmacy items for in-person shopping. The top public health officers from Ontario’s largest health units – Toronto, Peel and Ottawa urged Premier Doug Ford earlier in the week to impose the order, along with travel restrictions between regions and an emergency mandate for paid sick days. 
  • The United Kingdom’s drug regulator says people under 30 will be offered another product other than the AstraZeneca COVID-19 vaccine due to a rare blood clot risk. The Medicines and Healthcare Products Regulatory Agency said Wednesday the AstraZeneca vaccine continues to outweigh the risks for the vast majority of people. The UK’s decision was announced shortly after the European Union’s drug regulator said it had found a “possible link” between the AstraZeneca coronavirus vaccine and a rare clotting disorder, but the agency didn’t recommend any new restrictions for those taking the vaccine over the age of 18. The Moderna COVID-19 vaccine is expected to gain approval as the third vaccine for use in the UK in the coming days.
  • With Germany struggling to cope with the third wave of the coronavirus pandemic, Reuters is reporting Chancellor Angela Merkel is supportive of a demand for a short, tough lockdown. “Every call for a short, uniform lockdown is right,” deputy government spokeswoman Ulrike Demmer told a group of reporters on Wednesday. Chancellor Merkel has struggled to get all of Germany’s 16 state leaders on the same page with some states imposing night-time curfews over Easter, while others were experimenting with the easing of some restrictions.
  • China might be kept out of the next probe into COVID-19 origins as a group of scientists have called for more rigorous investigations – with or without Beijing’s involvement. An open letter signed by 24 scientists and researchers from Europe, the United States, Australia and Japan said the study conducted by the World Health Organization in January was tainted by politics. The letter states the study’s conclusions were based on unpublished Chinese research, while critical records and biological samples “remain inaccessible”. “Their (WHO) starting point was, let’s have as much compromise as is required to get some minimal cooperation from China,” said Jamie Metzl, one of the members who drafted the letter. 
  • Brazil set another unfortunate record on Tuesday with 4,195 deaths in one day due to the coronavirus. The numbers from Johns Hopkins University show just how dire the situation is in Latin America’s largest country. The month of March was the deadliest for the country since the pandemic began with at least 66,573 recorded deaths. Brazil has accounted for 28% of the world’s COVID-19 death toll since March 21st and only 2.42% of the total population in the country have been fully vaccinated. President Jair Bolsonaro has refused a national lockdown stating: “We will look for alternatives, we will not accept the ‘stay at home’ policy to close everything, to lockdown. The virus will not go away. The virus, like others is here to stay, and will stay for a lifetime. It is practically impossible to eradicate it.”

Covid-19 – Due Diligence And Asset Management

Fink says In-Person Client Meetings are Top Priority Post-Covid

Brief : BlackRock Inc. Chief Executive Officer Larry Fink said the thing he looks forward to most in the post-pandemic world is meeting with clients again, as the U.S. vaccination campaign continues and companies weigh how to unwind remote work setups. In his annual letter to shareholders, Fink said that there is no substitute for in-person meetings. His comments add to earlier remarks that he fears corporate culture can erode over time while working from home. “I miss the personal connections and unexpected ideas that come from meeting face-to-face and sharing a meal together,” Fink said Wednesday in the letter. “It’s often through a less structured conversation than one can have on a video call that we learn most about each other and experience intangibles, like culture, that are hard to see through a screen.” More than a year into the Covid-19 pandemic, global financial firms like BlackRock are deciding how to safely bring employees back to in-person work settings. BlackRock executives last year signaled the office will remain the primary work location for employees in the long term, and full-time remote work permission will be given only selectively.

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JPMorgan CEO Dimon sees U.S. Economic Boom Through 2023

Brief: JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on Wednesday the United States could be in store for an economic boom through 2023 if more adults get vaccinated and federal spending continues. “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE (quantitative easing), a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” Dimon wrote in his annual letter to shareholders published on the bank’s website. “This boom could easily run into 2023 because all the spending could extend well into 2023.” As head of the biggest U.S. bank, Dimon is widely seen as the face of America’s banking sector, and he used the letter to share his views on the country’s economic health and to press for policies to help address inequality and improve the criminal justice system.

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IMF Proposes Temporary ‘Solidarity’ Tax on Pandemic Winners and the Wealthy

Brief: High earners and companies that prospered in the coronavirus crisis should pay additional tax to show solidarity with those who were hit hardest by the pandemic, according to International Monetary Fund. A temporary tax would help to reduce social inequalities that have been exacerbated by the economic and health crisis of the past year, the fund said in its twice-yearly fiscal monitor on Wednesday. It would also reassure those worst affected that the fight against COVID-19 is a collective endeavour within societies. Vitor Gaspar, IMF’s head of fiscal affairs, told the Financial Times that a symbolic rise in taxation from those who have prospered over the past year would strengthen social cohesion even if there was not a pressing need to repair the public finances. Countries should consider this policy as it would help boost their citizens’ perception “that everybody contributes to the effort necessary for recovery from COVID-19,” he said.

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Seward & Kissel Survey Finds Alternative Investment Allocators Likely to Increase Allocations to Less Liquid Strategies and Embrace New Managers

Brief: While the “fear gauge” that tracks market volatility has remained at elevated levels since the onset of the pandemic, those who allocate alternative investment dollars for large investors are showing no signs of skittishness, according to the Alternative Investment Allocator Survey conducted by leading law firm Seward & Kissel.The survey found that allocators are likely to increase allocations to less liquid strategies and continue to embrace emerging managers in 2021. The full survey is available here. The survey analyses the views of individuals from pension funds, endowments, family offices, seeders, high-net-worth individuals, and others. Asked how their organisations’ allocations across a wide range of alternative investments would change in 2021, on average 42 per cent of participants anticipated their organisations to increase allocations to at least one strategy and 54 per cent said they would maintain their allocations, while just 4 per cent said their allocations would decrease. The strategies for which participants expect to increase allocations to in 2021 were primarily less liquid strategies typically utilised by closed-end funds with private equity, private credit, and venture capital accounting for the top three of the four strategies of interest for increased allocations, followed by equity hedge.

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Biden White House in Talks with Airlines on Vaccine Passports; will Issue Guidance

Brief: The Biden administration is in extended discussions with U.S. airlines and other travel industry groups to provide technical guidance for vaccine passports that could be used to ramp up international air travel safely, industry officials said. The administration has repeatedly made clear it will not require any businesses or Americans to use a digital COVID-19 health credential, however. It will also publish guidelines for the public. The key question, airline and travel industry officials say, is whether the U.S. government will set standards or guidelines to assure foreign governments that data in U.S. traveler digital passports is accurate. There are thousands of different U.S. entities giving COVID-19 vaccines, including drugstores, hospitals and mass vaccination sites. Airline officials say privately that even if the United States does not mandate a COVID-19 digital record, other countries may require it or require all air passengers to be vaccinated.

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ESG Funds Beat out S&P 500 in 1st Year of COVID-19

Brief: In the first 12 months of the COVID-19 pandemic, many large investment funds with environmental, social and governance criteria outperformed the broader market. One fund went from being among the poorest performers to the top of the list following tweaks to its portfolio. S&P Global Market Intelligence analyzed 26 ESG exchange-traded funds and mutual funds with more than $250 million in assets under management. We found that from March 5, 2020 — the month that the World Health Organization officially declared COVID-19 a pandemic — to March 5, 2021, 19 of those funds performed better than the S&P 500. Those outperformers rose between 27.3% and 55% over that period. In comparison, the S&P 500 increased 27.1%.  Funds that identify as "ESG-focused" screen for stocks based on value and growth like many other funds, but add various criteria such as ESG-focused governance practices, sustainability scores, disclosure practices, fossil fuel exposure, adherence to religious principles and workplace diversity. Critics of ESG investing often question whether the strategy can deliver premium returns. But ESG fund managers have said their focus on nontraditional risks led to portfolios of companies that so far have been resilient during the COVID-19 downturn.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday April 6, 2021:

  • In the United States, President Joe Biden and his administration are advising states to widen the vaccine eligibility by April 19th. The deadline is two weeks earlier than the previously announced deadline of May 1st and will target anyone over the age of 16 to get their vaccine shot if they so choose. The announcement means Americans no longer need to check with state and local websites to see whether they qualify. The White House administration has said since President Biden took office, four in 10 Americans have already received their first COVID-19 inoculation, a rate far ahead of most countries.

  • Canadian Conservative Leader Erin O’Toole said his government, if elected, would call a public inquiry to examine the federal’s government’s response to the COVID-19 pandemic. O’Toole accused the Justin Trudeau Liberal government of ignoring scientists’ warnings about the transmissibility of COVID-19 in the early days of the pandemic, of allowing national stockpile of personal protective equipment to become depleted and of defunding a key pandemic early warning system. “A public inquiry will ensure that all lessons learned from the crisis are publicly aired and improvements can immediately be adopted. Canada must be better prepared for future threats. We cannot afford to once again fail to keep Canadians safe,” said O’Toole. It has been rumoured that the leading Liberals might trigger a snap election in the fall, especially if the vaccine rollout goes well throughout the summer.

  • United Kingdom scientists are sounding the alarm that the government’s current easing of lockdowns could trigger a wave of COVID-19 infections, similar to last spring. The Scientific Advisory Group for Emergencies (Sage) aren’t as concerned about the next stage in reopening – April 12th of shops, hairdressers and pub beer gardens - but the proposed changes in May and June when social mixing is set to be permitted again. A paper from the London School of Hygiene and Tropical Medicine said their projections of stage four, when restrictions are set to be abolished could, “lead to a larger surge of cases and deaths comparable to that seen during the first wave.”

  • India’s Maharashtra state, home to the country’s financial capital, Mumbai, has ordered offices to work from home and shut malls and restaurants through April. India recorded more than 100,000 daily COVID-19 cases for the first time on Monday. An unexplained lull in recent months gave the country a false sense of security, which allowed businesses to reopen and fostered optimism among government officials about a recovery in growth. As of Monday evening, private offices were asked to work from home, with some allowances for banks and stock exchanges.

  • The United Arab Emirates (UAE) and Israel have started direct commercial flights between the two countries. UAE Ambassador to Israel, Mohamed Al Khaja and Israel’s head of mission to the UAE Eitan Na’eh were on the Etihad Airways inaugural flight. “As our countries recover from the COVID-19 pandemic, we have much to look forward to in commercial, diplomatic, technological, health, and tourism exchanges,” Khaja was quoted as saying by UAE state news agency WAM. Dubai has become a popular destination for Israeli tourists, even during the pandemic. It also doesn’t hurt that both countries are among the world’s fastest in their COVID-19 vaccination campaigns.

  • Australia and New Zealand have agreed to a quarantine-free travel bubble. New Zealand Prime Minister Jacinda Ardern made the announcement during a Tuesday news conference with the travel bubble set to begin on Sunday, April 18th at 11.59 pm. “This is an important step forward in our Covid response and represents an arrangement I do not believe we have seen in any other part of the world,” said Prime Minister Ardern. Under the new rules, travelers won’t be allowed to travel if they had a positive COVID-19 test in the previous 14 days or present flu-like symptoms.

Covid-19 – Due Diligence And Asset Management

IMF: COVID-19 Pandemic Recession Could Have Been Three Times as Bad

Brief : The International Monetary Fund (IMF) estimates that without government support through the COVID-19 pandemic last year, the global economic downturn would have been three times as large. A retroactive look from the IMF estimated that fiscal measures from governments around the world contributed about 6% to global growth in 2020, helping to soften a global shock that still contracted output by 3.3% in 2020. The IMF now says the COVID-19 recession is likely to leave a smaller scar on the global economy compared to the 2008 financial crisis. "Overall, the global economy seems to be coming back somewhat stronger than we had expected," IMF Chief Economist Gita Gopinath told Yahoo Finance on Tuesday. Still, the fund is recommending that countries with the ability to spend continue to support policy measures like unemployment insurance and stimulus checks through the economic reopening.

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China’s Growth Set to Drive World Economy in Post-Pandemic Years

Brief: China will drive global economic growth in the coming years as the world recovers from an pandemic that’s killed 2.9 million people, the International Monetary Fund predicts. China will contribute more than one-fifth of the total increase in the world’s gross domestic product in the five years through 2026, according to Bloomberg calculations based on IMF forecasts published Tuesday. Global GDP is expected to rise by more than $28 trillion to $122 trillion over that period, after falling $2.8 trillion last year in the biggest peacetime shock to output since the Great Depression.  The U.S. and India will be the second and third-biggest contributors to global growth in the period, according to the IMF, with Japan and Germany rounding out the top five.  Overall, the IMF forecasts that the global economy will expand 6% this year, before slowing toward a 3% pace by 2026. It also warned that growth in the coming expansion may be unevenly spread, with developing economies expected to have bigger losses and slower recoveries.  “Income inequality is likely to increase significantly because of the pandemic,” the Fund said in its World Economic Outlook report. “Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections.”

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Amid the Pandemic, Hedge Funds Grapple with Investments in New Tech and Alternative Data

Brief: The Covid-19 pandemic shifted the professional world to the online office. Yet despite the demands of the virtual space, only around half of hedge fund managers are spending money on new technology. According to a recent survey from the Alternative Investment Management Association, Simmons & Simmons, and Seward & Kissel, 47 percent of hedge fund managers answered “no” when asked if they were investing in new technologies. Those who answered “yes” are focused on one major trend: alternative data. In the survey, hedge fund managers and investors were asked a series of questions about the health of, and trends in, the hedge fund industry. The survey, which gathered data during the fourth quarter of 2020, asked questions of over 300 industry professionals, a majority of whom were hedge fund managers accounting for an estimated $1.3 trillion in assets under management. “The industry is investing in technology — period,” said Tom Kehoe, managing director and global head of research and communications at AIMA, in an interview. “Across the board, hedge funds were using technology more in the past 12 months. If we look at the next 12 months, our sense is that the industry will double down on the use of technology.”

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Hundreds of Bankers Return to JPMorgan, Goldman London Offices

Brief: Hundreds more JPMorgan Chase & Co. and Goldman Sachs Group Inc. bankers have returned to their London offices since the U.K. government eased its “stay at home” guidance on March 29. About 15% of JPMorgan’s staff in the city -- about 1,800 people -- came into the office last week, up from about 10% since Christmas, according to a person familiar with the matter. Goldman is expecting attendance to increase in the coming weeks to about 20% of its roughly 6,000 workers in the U.K. capital, another person said, asking not to be named discussing private information. Spokespeople for the banks declined to comment. The U.K. is inching out of its third Covid lockdown and banks of all types are looking to establish future working practices. Some financial firms are starting to entice employees back to deserted offices and an empty City of London, while other have moved to embrace remote work. “Organizations need to understand what their employees need and what will enable them to do their best work,” said Allison English, deputy chief executive officer of workplace research firm Leesman. “The decision is certainly not a binary ‘home or office’ one.” The property market is watching the return to work. A 37-storey skyscraper in the heart of the City is being put up for sale for 1.8 billion pounds ($2.5 billion), according to the Telegraph. The price tag -- a record for a London office building -- will be a test of investor appetite for offices following the pandemic.

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Covid Success to see Cashing in ‘Surge’ Over Pension Freedoms

Brief: UK investment platform provider A J Bell is predicting a significant increase in withdrawals from pension pots compared to the unusual circumstances caused by the Covid pandemic over the last year. In five of the six years since the pension freedoms launched in April 2015, the first three months of the tax year has seen the highest volume of flexible withdrawals. The exception is the 2020/21 tax year, when withdrawals dipped to £2.3bn amid severe stock market uncertainty. Total withdrawals have been between 10% and 33% higher between April and July than the next largest quarter in every other tax year. Tom Selby, senior analyst at AJ Bell, said "While most of us still have fewer things to spend our money on at the moment - particularly given restrictions on foreign travel - the success of the Coronavirus vaccine and more stable market conditions mean we should expect to see a significant jump in withdrawals in the coming quarter." Selby emphasised how until 2020, the beginning of a new tax year has traditionally been peak pension withdrawal season, with UK savers taking advantage of a fresh set of tax allowances to access larger amounts from their retirement pots.

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How Covid-19 has Accelerated e-commerce Trends

Brief: We are witnessing a sizeable and lasting shift to e-commerce across the economy - a shift that has been underway for decades, entirely catalysed by a single, revolutionary technological advancement - the emergence of the internet. The internet made it possible for businesses and individuals to buy and sell items and services online, and in a very short period, consumers had the convenience of almost unlimited selection available to them from the comfort of their homes, 24/7, with just a few clicks of a button. As it stands today, global e-commerce is an area of tremendous opportunity, as the disruption we see is only just beginning. The effect of Covid-19 on corporate and consumer behaviour has been pronounced and significant. This period has been a tailwind for e-commerce at a level unseen since the advent of mobile phones. For the first time in history, we saw an acceleration in e-commerce adoption despite gross domestic product declining globally. The pandemic has created some of the greatest retail, payment, and distribution challenges in our lifetime. In a matter of months, the pandemic catapulted the industry forward, accelerating the adoption of online shopping, digital communications, website creation and other industry trends at a pace that had previously taken years. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 1, 2021:

  • In the United States, the Treasury Department is working with the International Monetary Fund (IMF) to provide up to $650 billion in financial aid to the countries hit hardest by COVID-19. An announcement from the Treasury on Thursday stated they were working with IMF on Special Drawing Rights, which are reserve assets that countries can use to suppliant their foreign exchange assets, such as gold and U.S. dollars. Global demand for American currency has been an ongoing issue throughout the pandemic and has resulted in the Federal Reserve also to engage in a dollar-swap program around the world. “Addressing the long-term global need for reserve assets would help support the global recovery from the COVID-19 crisis. A strong global recovery would also increase demand for U.S. exports of goods and services – creating U.S. jobs and supporting U.S. firms,” said the Treasury department in a statement.
  • In Canada, after more than a week of new COVID-19 cases going over the 2,000 mark, Ontario is introducing a province-wide emergency brake. The measure will come into effect as of April 3rd and will last at least four weeks. “I know pulling the emergency brake will be difficult on many people across this province, but we must try and prevent more people from getting infected and overwhelming our hospitals,” said Premier Doug Ford. The restrictions will not be as tight as the province-wide lockdown that was imposed in December. For instance, non-essential retail will be permitted to be open, but at 25% occupancy with essential retail outlets, like grocery stores, capped at 50%.
  • United Kingdom Prime Minister Boris Johnson gave a strong hint on Thursday that vaccine passports will be used once international travel resumes. During a trip to Middlesbrough on Thursday, reporters asked the prime minister if vaccine passports were un-British and this was his response: “On the issue of vaccine certification, there’s definitely going to be a world in which international travel will use vaccine passports. You can see already that other countries, the aviation industry, are interested in those and there’s a logic to that.” Prime Minister Johnson’s comments come after opposition leaders from the Labour Party and Liberal Democrats warned against the introduction of such certificates on the grounds they could be “divisive and discriminatory”.
  • In a televised address Wednesday evening, French President Emmanuel Macron announced a nationwide four-week lockdown set to begin on Saturday. In the address, President Macron implored the nation to make the extra effort as the lockdown comes into effect with restrictions being flexible this weekend during the Easter holidays to allow people to relocate within regions. The nationwide lockdown represents a policy shift for the French leader who favoured a localized approach when dealing with the pandemic. However, similar to the UK, that plan proved unproductive. The people of France also seem to be on board with a snap Harris International poll showing 71% approve of the decision to extend restrictions, which include the closing of schools and businesses.
  • The Italian government has made a potentially controversial move requiring all health workers in the country to take a coronavirus vaccine inoculation. According to media reports, Italy has an entrenched anti-vaccination movement, but a recent discovery of clusters in hospitals after staff refused to be vaccinated has led to a public outcry. In a decree approved by Prime Minister Mario Draghi’s cabinet, all health workers and pharmacists must undergo vaccination and those who refuse, could be suspended without pay for the rest of the year. More than 109,000 people have died in Italy due to the coronavirus.
  • Israel continues to be one of the country’s leading the way in their vaccination campaign. The latest numbers on Wednesday show the active coronavirus cases in the country have dipped to their lowest level since June 2020 and serious infections have hit a three-month low. Israel so far has vaccinated 4.7 million people or 51.2% of its population with two coronavirus shots. Those numbers are even better when it comes to Israel’s most vulnerable populations. Over 80% of all Israeli residents over 50 are fully inoculated and 90% for those over the age of 70. The country started to emerge from its third lockdown back in February with travel inside the country now mostly free of coronavirus restrictions, especially for the vaccinated.

Covid-19 – Due Diligence And Asset Management

Bridgewater to Offer Flexible Return to Work, Prince says

Brief : Bridgewater Associates LP plans to offer employees flexibility as they return to work for the first time since the Covid-19 pandemic began, according to Co-Chief Investment Officer Bob Prince. The firm expects to move toward a blended approach with some staff spending fewer days in the office and offering opportunities for employees to exercise more flexibility, Prince said Thursday in an interview on Bloomberg TV. The Westport, Connecticut-based hedge fund’s current plan is to have everyone in the office one day a week and smaller groups a second day, according to Deputy Chief Executive Officer Nir Bar Dea. The plan will start after Labor Day. The decision is a departure for the firm, which is known for an unorthodox culture that prizes employees working intensely together. Founder Ray Dalio runs the industry giant following a set of about 200 principles, the most central of which is “radical transparency” -- a demand that employees be brutally honest with one another. All meetings are taped and archived for future study and discussion. Prince said having staff work from home has been mixed. “Ironically, in some ways, we’ve been more productive in the last year than we ever were, in other ways less,” he said. “Obviously the culture of a community is very hard to build when you’re not actually seeing each other.”

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Brookfield to Take Property Arm Private in US$6.5B Deal

Brief: Brookfield Asset Management Inc. said it reached a US$6.5 billion agreement to acquire the shares of Brookfield Property Partners LP it doesn’t already own, boosting its offer to take private its real estate arm. The Canadian alternative-asset manager said Thursday it plans to acquire the minority stake for US$18.17 per unit. That would mark a 10 per cent increase to the US$16.50 a unit Brookfield Asset offered in January, and a 26 per cent premium over where the shares traded prior to that earlier proposal. Brookfield Property’s board has unanimously approved the deal, according to the statement by the companies. Brookfield Property dropped 0.8 per cent to US$17.66 as of 10:44 a.m. in New York. Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world. At the end of December it had about US$88 billion in total assets, including developments such as London’s Canary Wharf and Brookfield Place in New York. In 2018, Brookfield Property acquired GGP Inc., the second-largest mall operator in the U.S., for about US$15 billion. The pandemic has taken a toll on the company as widespread stay-at-home orders kept workers from offices and shoppers from malls. Brookfield Property Partners reported a US$2 billion loss and its shares fell 21 per cent last year.

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Global M&A Sets First-Quarter Record as Dealmakers Shape Post-COVID World

Brief: Mergers and acquisitions (M&A) activity surged globally in the first quarter of 2021 to a year-to-date record, as companies and investment firms rushed to get ahead of changes in how people work, shop, trade and receive healthcare during the COVID-19 pandemic. While the number of deals was up only 6% from a year ago, the total value of pending and completed deals rose 93% to $1.3 trillion, the second-biggest quarter on record, according to data provider Refinitiv. Dealmakers said a boom in the stock market and low borrowing costs - driven by the Federal Reserve’s loose monetary policies - emboldened companies, private equity funds and blank-check acquisition firms to pursue their dream deals. This is despite the global economy’s failure to have fully recovered as yet from the virus’ financial fallout. “This is as robust and broad-based an M&A market as I have witnessed in the last 20 years,” said Colin Ryan, co-head of Americas M&A at Goldman Sachs Group Inc. “We are in an environment where assets are scarcer than the available capital right now.”

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“Cautiously Optimistic”: New Industry Finds Hedge Funds Buoyant in 2021 After Overcoming Covid Challenges

Brief: Hedge funds are “cautiously optimistic” on their growth prospects for the coming year, according to a new deep-dive industry study jointly published by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel. ‘The Global Hedge Fund Benchmark Survey: Beyond the Horizon’ probed manager performance, investor sentiment, future challenges, and alignment of interests, among other things. The wide-ranging study is part of an ongoing research series into the health of the hedge fund industry conducted by AIMA, the global trade body for the hedge fund and alternative asset management industry, together with law firms Simmons & Simmons and Seward & Kissel. Its key findings suggest 2021 will see a further acceleration of trends, with the industry becomingly increasingly digitalised and more social conscious, and hedge fund firms playing an integral role in the global economic recovery from the Covid-19 pandemic.

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Covid Kickstarts India’s Reforming Economy

Brief: India seems to have recovered quickly from Covid, and most citizens have been able to go back to their normal lives free from lockdown restrictions, says Jupiter's Avinash Vazirani. The country has reported just 12 deaths per 100,000 population, a much lower figure than, for example, the UK's 189 per 100,000. More than 30 million people in India have been vaccinated so far, with the government hoping to cover the most vulnerable 250 million by the end of July. India is especially well-placed for Covid vaccinations, as the country manufactures around 60% of the world's supply of vaccines. We think that India's world class healthcare and pharmaceutical industry will be a beneficiary of long-term trends for the treatment of and vaccination against Covid. Our outlook is also positive for India's economic growth in general. Economic activity has been trending above pre-Covid levels since January, with Goods & Services Tax (GST) takings up 8% in January, on a year-on-year basis, to a record high. According to the Federation of Indian Chambers of Commerce & Industry (FICCI) business confidence in March is at a decadal high, with companies not only seeing a recovery in demand, but also the potential for higher investment over the coming quarters.

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After a Year of Remote Work, Institutional Investors are Worried About Employee Burnout

Brief: Over a year into the pandemic, institutional investors are worried about the mental health of their employees. Managing stress and curbing burnout among employees who are working remotely were cited as top concerns in Nuveen’s inaugural global survey of institutional investors, which was released Wednesday.  Nuveen, the investment manager of TIAA, has $1.2 trillion in assets under management and operates in 27 countries, according to a press release on the survey results. The asset manager surveyed 700 global investors and consultants including decision-makers at corporate and public pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, central banks, and consultants. The organizations represented in the survey held assets ranging from more than $10 billion to no less than $500 million, Nuveen said. When the Covid-19 pandemic changed the nature of work and shifted the investing world to the home office, institutional investors took the change in stride. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.